IPD_Cost_Code_v5

IPD Cost Code Measuring the cost performance of buildings

In association with:

About IPD Occupiers

About Office of Government Commerce

IPD Occupiers provides high quality performance analysis, benchmarking and research services to public and private sector users of corporate property. This work is founded on our industry standard measurement frameworks, collectively entitled the IPD Occupiers Global Estate Measurement Standards (GEMS). Our GEMS currently consists of three documents:

The Office of Government Commerce (OGC) is an independent office of HM Treasury, established to help Government deliver best value from its spending. OGC provides policy standards and guidance on best practice in procurement, projects and estate management, and monitors and challenges Government Departments' performance against these standards, grounded in an evidence base of information and assurance. It promotes and fosters collaborative procurement across the public sector to deliver better value for money and better public services; and it provides innovative ways to develop Government's commercial and procurement capability, including leadership of the Government Procurement Service.

• IPD Cost Code - Our award-winning and well-established framework for collecting property cost information.

• IPD Environment Code - A globally launched good practice framework for collecting property-related environmental information.

• IPD Space Code - The recently launched conceptual measurement framework for collecting floor space information.

For more information, please visit: www.ipdoccupiers.com.

IPD Occupiers is part of IPD, the world leader in real estate performance analysis. Our products and services aim to help those in the real estate industry, from investors to occupiers, get the most out of their property.

About Deloitte Deloitte is one of the UK’s leading professional service firms and has 350 professionals across audit, consulting, corporate finance and tax services dedicated to the real estate industry.

Our Real Estate Solutions practice comprises of real estate, construction and finance professionals. We work with major corporate occupiers to help them: • Manage their cost bases as efficiently as possible;

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• Introduce new ways of working and rationalise surplus space;

The IPD Cost Code (or the “Code”) is a real estate and facilities data

• Review Facilities Management supply arrangements; and

classification system developed and owned by Investment Property Databank

• Ensure their CRE functions are organised effectively and have the processes and policies in place to manage their strategic cost base.

Limited (the “Company”) and protected by copyright and database right. All rights conferred by the law of copyright and by virtue of international copyright conventions are reserved by the Company.

The Code may not be reproduced in whole or in part without the prior written consent of the Company.

Licences are available to consultants, advisers and other intermediaries from the Company to use the Code to design and create cost-related real estate and facilities information products and services. For a licence, please contact the marketing department of the Company via www.ipd.com.

End users may use the print or electronic editions of the Code for their internal business purposes.

All references to the Code in any document or other media must be fully and prominently acknowledged in the following form: “Source: IPD Cost Code, © and database right, Investment Property Databank Limited 2009”.

The Company has no liability for any losses, damages, costs or expenses suffered by any person as a result of any reliance on the Code.

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IPD Cost Code - Measuring the cost performance of buildings

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Endorsements

The IPD Cost Code is an excellent source of property cost information enabling well-informed property decision-making. The inclusion of a new cost measure to capture IT costs improves the benchmark frameworks and should be considered in not only reducing overhead cost but in achieving best practice in service quality and delivery. The updated reconciliation guide to other standards improves the comparison with other global benchmarking and analysis and the new case studies are practical and informative.

The BCO fully endorses the fifth edition of the IPD Cost Code.

Gary Wingrove Chairman Occupiers Group British Council for Offices

As the demands put on the modern day facilities manager increase along with the diversity of skills required to run an efficient operation, then the utilisation of innovative technology coupled with accurate and dependable cost modelling and analysis tools is a must. The IPD Cost Code provides a tried and tested framework that the Facilities Management Association believes should be part of that suite for any professional facilities manager.

Chris Hoar Director General Facilities Management Association

The British Institute of Facilities Management is pleased to endorse the latest edition of the award-winning IPD Cost Code as an essential guide for all professionals working in the built environment industry. The facilities manager’s credibility in the boardroom will always be based on the ability to produce accurate and relevant cost and performance data in a format that will allow the board to make strategic decisions concerning property and facilities services. I believe that this Code will enhance the facilities manager’s ability to achieve this. This latest edition helps define the important distinctions between OPEX and CAPEX expenditure and includes a new cost measure to capture IT costs. Additional material has been added including new case studies from both the private and public sector and an important reconciliation matrix to help cross reference with other standards. This latest edition will help you keep abreast of measuring and monitoring expenditure at a time it has never been more important to control costs.

Ian Fielder Chief Executive Officer British Institute of Facilities Management

Complementing the Space Code and the Environment Code, the fifth edition of the IPD Cost Code is a much welcomed internationally integrated cost measurement standard of occupier organisations that want to build a truly balanced picture of property performance. All IPD Codes are fully supported within our international OSCRE Data Exchange Standards. These standards are essential for industry to exchange high volumes of consistent property data, shared for automatic performance reporting and truly effective benchmarking, using our open Standard XML. We look forward to working with industry, IPD Occupiers and software providers in the continuous development of these Standards to enable integration and efficient data management.

The ability to capture accurate, consistent and complete information on the cost of occupying property is central to effective property strategy and management. The fifth edition of the IPD Cost Code continues to provide a robust and comprehensive industry standard for recording and measuring the total cost of property occupancy. The Code provides corporate real estate managers the ability to control their costs and contribute more effectively to their organisations. CoreNet endorses the Code and supports its continued development.

Paul Harrington President CoreNet Global UK 2

IPD Cost Code - Measuring the cost performance of buildings

Catherine Williams Chief Executive Officer OSCRE/PISCES

Reliable property performance cost analysis and the accurate measuring of total occupancy costs are essential for the development of effective property management strategies for both owners and occupiers. The IPD Occupiers Cost Code is compatible with the cost classifications set out in the RICS Service Charge Code and will further enable chartered surveyors to provide more effective corporate property management that delivers real business benefits.

Paul Bagust Chairman Corporate Occupiers Group Royal Institution of Chartered Surveyors

Preface

We are delighted to introduce the fifth edition of the IPD Cost Code, IPD Occupiers' revised standard for measuring the cost performance of corporate property. This document complements our well-established Environment Code and our recently launched Space Code to provide a balanced view of property performance.

With operating expenses making daily headlines, cost optimisation is back at the very top of the Real Estate and Facilities Management agenda. The objectives of the IPD Cost Code are to: • Enhance our widely adopted set of definitions for cost measurement • Provide a transparent basis for measurement, comparison and benchmarking • Support the communication of data, information and knowledge • Improve our knowledge of how we spend our second largest expenditure • Help organisations make better decisions in a rapidly changing world

The IPD Cost Code is the essential starting point for property executives charged with justifying the costs of real estate.

Consultation with our clients and other leading occupiers and key industry organisations, however, has highlighted the need to update our Cost Code. This fifth edition of the Cost Code has been radically enhanced in a number of areas: • Clearer distinction between OPEX and CAPEX • Inclusion of a new cost measure to capture IT costs • Three new case studies from OGC, AXA Group and Centrica • Updated reconciliation guide to other standards • New worked example including cost ratios Finally, we would like to thank the sponsors of the Cost Code.

We are extremely grateful for their help and support, without which this Cost Code would not have been possible.

Hermen Jan van Ree Senior Manager IPD Occupiers

Christopher Hedley Managing Director IPD Occupiers

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Users and Contributions

We are delighted to have received comments and advice from a rich variety of occupier and industry organisations as well as professional associations and academics listed below. Any errors or omissions remain the responsibility of IPD Occupiers.

Abbey ABN Amro ABSA Actium Consult Advanced Workplace Associates Aegon AIG Europe Alcatel Alexi Marmot Associates Altys Gestion Asset Factor AstraZeneca Atisreal Aviva AXA Bank of Ireland Barclays BBC BCO BIFM BP BT Bull Canada Life Carillion CB Richard Ellis Centrica Chadwick International Cisco Civil Aviation Authority Colliers CRE Commerzbank Computer Sciences Corp Co-operative Financial Services CoreNet Global Credit Agricole Credit Suisse First Boston Cushman & Wakefield Deloitte Deutsche Bank Discovery Health Drivers Jonas 4

Driving Standards Agency EC Harris EDF Energy Eurogem Faber Maunsell First National Bank France Telecom Gensler GlaxoSmithKline Global Actifs GPIM (Macif Immo) GVA Grimley HBOS HOK International Hollard HSBC IBM Icade ING ISS Johnson Controls Jones Lang LaSalle King Sturge KPMG Landmark Legal & General Lloyds TSB London Electricity London Underground Marsh & McLennan Metis MMA Morgan Stanley MWB Business Exchange Nationwide Building Society NB Real Estate Nestle Netika Network Rail Npower Office of Government Commerce Old Mutual

IPD Cost Code - Measuring the cost performance of buildings

Oracle Orange PCA Pearson Pfizer PISCES PricewaterhouseCoopers Property Solutions Prudential Pythagoras International Qinetiq Ramidus Consulting Regus Remit Consulting Reuters RICS Rider Hunt Terotech Rio Tinto Royal & SunAlliance Royal Bank of Scotland Royal Mail Savills Shell Shire Siemens Skandia Slough Estates Societe Generale Standard Bank Standard Chartered Standard Life Sulzer Swanke Hayden Connell Telereal Transnet Transport for London United Utilities University College London Valeximm Vivendi Z/Yen Zurich

Contents

Preface

3

1

Introduction 1.1 Purpose of the code 1.2 The cost of occupancy

7 7 9

2

Terms and Principles 2.1 Basis of calculation 2.2 Other principles 2.3 Currency and cost conversion

11 11 12 13

3

Cost Measures 3.1 Conceptual framework 3.2 Cost measures

15 15 16

4

Ratios and Worked Example 4.1 Budgets and targets 4.2 Cost ratios 4.3 Worked example

25 25 25 26

5

Applying the Code 5.1 Assessing cost performance 5.2 Data collection 5.3 Case studies

31 31 31 33

6

Cost Optimisation 6.1 Occupancy cost drivers 6.2 Strategic decisions

39 39 41

References

44

Appendix A - Reconciliation Guide

45

Appendix B - Mapping Guide

48

Appendix C - Measurement Template

52

IPD Cost Code - Measuring the cost performance of buildings

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IPD Cost Code - Measuring the cost performance of buildings

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Introduction

In this chapter we aim to clarify the purpose of the Cost Code by answering the following questions. What is the Cost Code and why is it needed? What are the objectives and the benefits? What is the scope and relation with existing standards?

In addition, we describe the productivity challenge and how occupancy costs can influence attaining the right balance between efficiency and effectiveness.

1.1 Purpose of the code

As custodians to the second largest expenditure within whitecollar organisations - only next to salary and benefits - real estate and facilities managers need standard terminology to accurately interpret and compare occupancy costs. It is especially this comparability of data which is very important for a wide range of decision-makers such as planners, architects, and investors - in addition to the core target of this Code: corporate and public sector occupiers.

Given the challenges associated with measuring, analysing and reporting occupancy costs, IPD has developed the Cost Code to help property professionals deliver high quality performance information to their organisations and other stakeholders.

The IPD Cost Code - The IPD Cost Code is our award-winning and well-established framework for the collection, measurement and analysis of occupancy cost information, involving rent, charges and taxes, fit out and furniture as well as building operation, business support, property management, and information technology. Through use of common terminology, the Code can be applied to any building, anywhere in the world.

First launched in 1999 as the Total Occupancy Cost Code, the IPD Cost Code was relatively quickly embraced as the industry standard for measuring property costs in the United Kingdom by a wide variety of end-user organisations. In response to feedback from various multinational end-user organisations, the International Total Occupancy Cost Code was launched in 2001, reflecting the experience of global organisations and extending its scope internationally.

This fifth edition of the Cost Code has been updated to reflect feedback received over the last three years as well as our personal experience in working with its fourth edition. It also includes a clearer distinction between annual OPEX and annualised CAPEX, a new cost measure to capture IT costs as well as three new case studies from OGC, AXA Group and Centrica.

Need for the Code - Keeping occupancy costs under control is the first priority of most property executives. The IPD Cost Code is a well-established and internationally accepted standard for collecting, measuring and analysing occupancy costs in real estate and facilities management.

Further globalisation reinforces the need for standard terminology and a consistent set of cost definitions in order to monitor and manage cost performance across borders.

Objectives - Most fundamentally, the Cost Code is needed to measure and compare the occupancy costs of buildings. Without a globally accepted framework for measuring and reporting on cost performance, many organisations are either simply not doing it, or the quality and consistency of the data collected may be questionable. This problem is especially acute for organisations that have a large number of buildings around the world and need to develop a 'global view' of occupancy costs. The Code provides precisely this good-practice global measurement standard.

The objectives of this Cost Code can be summarised as follows: • Enhance our widely adopted set of definitions for cost measurement • Provide a transparent basis for measurement, comparison and benchmarking • Support the communication of data, information and knowledge • Improve our knowledge of how we spend our second largest expenditure • Help organisations make better decisions in a rapidly changing world

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Main benefits - Through use of the Cost Code property professionals will be better equipped to support financial objectives, for example through: • Gain clarity on occupancy costs of the buildings we use and occupy • Create cost performance targets and track progress over time • Support effective decision-making on expenditure and cost allocation • Accurately and confidently communicate financial improvements • Enable benchmarking against other organisations Scope - The Cost Code is intended for the collection of data and the analyses of information relating to the occupancy costs of buildings. The Cost Code is applicable to most types of building, but has been developed with particular reference to office buildings and commercial buildings as well as manufacturing buildings and retail buildings.

The Cost Code is being continually improved and adapted to suit the needs of users both nationally and globally. We are pleased to receive: • Comments on the terms and principles contained in this document • Comments on the cost measures contained in this document • Details of country specific cost measurement standards • Suggestions for improvement and future data items • Ideas for improving the rate of acceptance

Other standards - To set the Cost Code in context we have analysed leading cost classification standards and mapped the Cost Code against them. None of these standards, to our knowledge, have found widespread acceptance amongst occupiers across national borders. Nor do we believe that any of the comparative standards have the structure or depth of definition required to provide an effective platform for the collection, measurement and analysis of occupancy costs.

The standards examined include: • Australia: PCA - Asset Performance Scorecard • France: IFMI - Observatoire des coûts d’exploitation des bureaux • Netherlands: NEN 2748 - Termen voor Facilitaire Voorzieningen • United Kingdom: RICS Code of Measuring Practice • United States: BOMA - Chart of Accounts • United States: IFMA/Global FM - Global Benchmarks Survey • United States: IMA - WorkPoint Accounting Appendix A of this document contains a reconciliation guide between the IPD Cost Code and the BOMA, NEN and RICS Standards.

Please feedback any comment to us at occupiers@ipd.com.

Future editions of this Code will benefit from your input.

According to systems theory, the content of the human mind can be classified into four categories: • Data - facts and figures • Information - processed data • Knowledge - applied information • Wisdom - evaluated knowledge The first three categories relate to the past as they deal with what has been or what is known. Only the last category, wisdom, deals with the future because it incorporates vision and design. With wisdom, people can create the future rather than just grasp the present and past. But achieving wisdom is not easy as one must move successively through the other categories. By understanding relations, patterns and principles, one can respectively move from data to information, from information to knowledge, and finally from knowledge to wisdom.

connectedness

From data to wisdom wisdom

information

data

IPD Cost Code - Measuring the cost performance of buildings

understanding patterns

understanding relations

understanding

From data to wisdom (Ackoff 1989)

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understanding principles

knowledge

1.2 The cost of occupancy In the light of increased (global) competition and the current economic climate, operating expenses and especially the potential for reductions in these expenses make daily headlines.

With the average Total Occupancy Costs of an office building accounting for a significant 8 to 12 percent of an organisation’s total operating expenses, the work environment is an obvious target for cost scrutiny. In order to properly manage total occupancy costs, however, one needs to have a clear picture of all its components. Furthermore, one needs to understand the trade-off between costs per m2 and per Full Time Equivalent (FTE).

Rental value growth by property type - Similar to rental value growth by country, the figure below provides property professionals with UK rental value growth (in £ per m² NIA) by indexing the rate of growth in occupier estates for all main property types in the UK since 2003. Rental value growth is compared with the UK Retail Price Index (RPI) excluding mortgage interest payments - a key measure of inflation in the cost of goods and services.

140

RPI Retail Office Industrial Residential Other property

130 120

Rental value growth by country - The cost of rent represents almost one third of Total Occupancy Costs for most organisations. These costs are primarily driven by geography, location and building use and typically fixed for a certain period of time. Therefore, it is essential that the strategy for property acquisition and the terms on which space is held (buy or lease, long or short lease term) are matched to the organisational requirements. Similarly, it is very important to understand the rate at which rents are growing across the market. The figure below provides property professionals with rental value growth (in £ per m² RFA) by indexing the rate of growth in various EU countries since 2003.

120

France Germany Italy Netherlands Portugal UK

115 110 105 100 95

110 100 90 80

2003

2003

2004

2005

2006

2007

2008

R

2006

2007

2008

Rental value growth by property type in the UK (£ per m NIA)

Total Occupancy Costs by office type - IPD Occupiers considers Total Occupancy Costs per Full Time Equivalent (FTE) as the primary cost metric, particularly for office buildings. It is derived from a combination of the average occupancy costs per m² (cost efficiency), and the average space allocation per FTE (space efficiency). Tracking this metric over time, especially in real terms, gives the best indication of efficiency improvement in an organisation or across the marketplace. The figure below 2 with Total 2 Occupancy Costs by provides property professionals indexing the rate of growth in occupier estates for all main office types since 2003.

RPI 2 2 HQ offices Client-facing offices Admin offices Call centres All offices

140

2

Rental value growth by country in the EU (£ per m RFA)

2005

2

150

90

2004

130 120 110 100 90

2003

2004

2005

2006

2007

2008

Total Occupancy Costs by office type in the UK (£ per FTE)

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Building Operation Costs for offices - The figure below shows property professionals the extent to which building operation costs (in £ per m² NIA) have developed over the last five years compared with the base inflationary increase in the cost of inputs into these services (labour, raw materials and energy). Again, this is shown by the UK Retail Price Index (RPI) excluding mortgage interest payments.

200

RPI Service charges Repair & maintenance Manned guarding Office cleaning Total utilities

180 160 140 120 100 80

2003

2004

2005

2006

2007

2008

Building Operation Costs for offices in the UK (£ per m2 NIA)

2

10

IPD Cost Code - Measuring the cost performance of buildings

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Terms and Principles

In this chapter we provide an overview of the key principles to be applied when using the IPD Cost Code. First, we distinguish between operating expenditure and capital expenditure in determining Total Occupancy Costs. Furthermore, we explain additional principles to be applied. Finally, we provide guidance concerning currency conversions.

2.1 Basis of calculation The basis of calculation of Total Occupancy Costs differs between rented or leasehold buildings and owned or freehold buildings.

For rented buildings the Total Occupancy Costs are made up of: • Annual operating expenses such as rent and local property taxes, repair and maintenance, service charges and support services as well as management to reflect operating costs, and • Annualised capital expenses such as adaptation and equipment as well as IT infrastructure and hardware to reflect capital costs.

For owned buildings the Total Occupancy Costs are made up of: • Proxy costs for rent to reflect rental value or notional rent, • Annual operating expenses such as local property taxes and support services, repair and maintenance as well as management to reflect operating costs, and • Annualised capital expenses such as adaptation and equipment as well as IT infrastructure and hardware to reflect capital costs.

Calculation of annual operating expenditure (OPEX) - In determining annual operating expenditure it is important to adhere to the following rules: • All capitalised costs (i.e. costs which are capitalised on the balance sheet) are excluded from operating costs.

• All operating costs reflect the annual cost of occupation and are recorded for a complete financial year. Normally costs would be recorded for historic financial years but managers will also want to be able to prepare budgets for future years on the same basis.

• All costs should be recorded on the basis of expenditure on an accruals basis for a complete financial year. All expenditure heads should be recorded separately and are by necessity mutually exclusive. This may be difficult where support services are bundled (see next point).

• In certain cases expenditure will need to be apportioned, for example where contracts cover more than one building. The apportionment should be based on an appropriate denominator (e.g. net internal area or full time equivalent). The costs of multitasking staff (e.g. post room staff helping with internal moves) should be entered under the predominant nature of the job.

• All costs are to be calculated net of any income received, including any income recoverable under a service charge payable by a sub-tenant. Where occupiers have rented out any of their property to other organisations, the net costs to the occupier should be calculated. This may mean that benchmarking of such costs will be difficult.

• Any expenditure covered by an insurance policy - including an internal risk charge - and any such insurance claim under that policy should be excluded both as cost and income respectively. Occupier organisations who self-insure, thereby bearing the risks themselves, will either have a nil cost under this heading or an agreed internal risk charge, if applicable.

• Where rebates are received for overpayment these should be annualised over the period that the rebate relates to. Penalty payments should be included in the year the expense is incurred.

• If a leasehold property is not paying rent due to a rent free period, the rent free period should be treated in the same manner as it is treated in the statutory accounts.

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Calculation of annualised capital expenditure (CAPEX) - In determining annualised capital expenditure it is important to adhere to the following rules: • Depreciation of adaptation and equipment, IT infrastructure and hardware, etc. should be included in the Total Occupancy Cost calculation for both rented and owned buildings to reflect both historic investment in buildings and ongoing capital investment.

• The depreciation charge included in the Total Occupancy Cost calculation should correspond with the occupier’s depreciation policies and the depreciation charge for adaptation and equipment, IT infrastructure and hardware, etc. included in its statutory accounts.

• On some occasions, the capital expenditure on adaptation and equipment, IT infrastructure and hardware, etc. on the balance sheet may cover multiple buildings. On these occasions, the depreciation charge will need to be allocated to specific buildings; the basis of allocation will vary on a case by case basis reflecting the nature of the works done.

• For all occupiers who have no clear depreciation policies, recommended depreciation periods are provided throughout Chapter 3.

Calculation of rent for owned buildings - Whilst there may be no cash cost directly associated with owned properties, such as rent and service charges, the cost of capital needs to be reflected.

Most occupier organisations value their owned buildings at least once every five years to estimate the open market rental value.

This is the preferred basis for calculating a ‘CA1 Net rent’ figure for owned buildings. Using this approach makes the treatment for owned buildings as consistent as possible with that for rented buildings.

However, if such valuations do not exist, owners should enter the cost of capital by multiplying the value of the asset as set out in the financial statement by the organisation’s weighted cost of capital to arrive at a notional rent figure. The depreciation charge incurred in connection with the land and buildings is not considered a valid measure of the notional cost of freeholds.

All expenditures and sales taxes - both recoverable and irrecoverable - should be included in determining Total Occupancy Costs. For benchmarking purposes, however, it is desirable to review the cost base excluding expenditures or sales taxes. Therefore, it is best practice to be able to distinguish the amount attributable to tax from the direct cost invoiced by a supplier.

Treatment of expenditure tax

12

IPD Cost Code - Measuring the cost performance of buildings

2.2 Other principles Principles to be applied to specific cost categories in the IPD Cost Code are explained as follows.

Unitary charge - Consolidated unitary charges are increasingly common practice in the real estate and property arena. These charges will often be applied to a total real estate and facilities services package. The following are examples: • Serviced offices where a package of core services is included in the price (normally paid per workstation), which makes it difficult to disaggregate the costs • Property outsourcing where, under a long term contract, a building is provided to the occupying organisation. In addition, services may be bundled (like serviced offices) in a total contract sum, which makes it impossible to disaggregate the costs.

Please see Section 6.2 for a further discussion of serviced offices and property outsourcing.

Occasional space - The costs of hiring occasional space procured by the real estate or property management function, which is not considered to be part of the estate, should be entered under cost category CA7 Occasional Space. This will include the hiring of meeting spaces as well as corporate ‘touchdown’ deals where staff pay as they go. Occasional space costs may either be collected for the estate or country as a whole or be entered against a particular building where this is more appropriate, for example where overflow space is regularly taken. Where space is not procured centrally but is independently procured by the relevant business unit or department, these costs should be ignored and treated as a general business expense.

Service charges - We recommend breaking down service charge costs where possible so that the full costs of the building under each cost category can be properly identified. See Appendix A - Reconciliation Guide for a mapping of the IPD Cost Code to the RICS Code of Measuring Practice.

Improvement and repair - There may be some confusion between improvement on the one hand and repair on the other.

A common sense approach is required when deciding whether large items of expenditure should be improvement (the provision of something new) or repair (putting something back into good or acceptable condition).

Plant and machinery - Costs for plant or machinery as part of the core business and/or logistics processes should be excluded.

To such costs, in certain circumstances, would inflate the cost base considerably. For example, specialist production plant such as assembly lines should be excluded whereas a boiler plant that provides heating to the building should be included.

Health & Safety - Health and safety is not shown as a separate cost category because it is commonly found as part of many different cost categories. Generally, health and safety associated to physical works should be entered under cost categories CC3 to CC6, whereas the health and safety manager should be entered under cost category CE2 Facilities Management.

2.3 Currency and cost conversion Currency conversions are important for the consistent calculation of Total Occupancy Costs across a global estate. The recommended method for dealing with currency is as follows: • Record all costs in local currency.

• At the end of each of the organisation’s accounting period convert the local currency into the base currency used by the organisation in its financial statements.

• For the purposes of benchmarking, convert all amounts recorded in the currency of the financial statement into US dollars and Euros, where this has not already been done.

• Keep a record of the conversion rates used (a currency grid).

The currency grid should allow for most types of trend analysis and local country benchmarking.

Conversion rates used should follow the accounting practice of the organisation.

IPD Cost Code - Measuring the cost performance of buildings

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IPD Cost Code - Measuring the cost performance of buildings

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Cost Measures

In the main chapter of this document, we first present and explain our conceptual framework for measuring occupancy costs for office buildings. Subsequently, we provide clear and consistent definitions of the cost measures arising from our

framework. By way of an illustrated example we aim to provide even more clarity on both the measurement framework and the definitions.

3.1 Conceptual framework

The primary cost measures for international comparison and benchmarking are: Property Occupation Costs, Adaptation and Equipment Costs, Building Operation Costs, Business Support Costs, Property Management Costs, and Information Technology Costs. With each primary measure consisting of a number of secondary measures, one can use any of these 41 secondary cost measures for more detailed analysis.

In order to compare occupancy costs constructively and consistently at a global level there is a need for an international cost measurement standard.

By aligning the various country specific cost measurement standards mentioned in section 1.1, we created a global unifying framework for measuring occupancy costs associated with buildings. By providing the right amount of granularity, our framework can be applied at both an international level and the various national levels.

Cost measure

Operating costs

Capital costs

Annual costs

CA

Property Occupation

CAX

Net Rent

CAY

Notional Rent

CAZ

CAX + CAY

CB

Adaptation and Equipment

CBX

Equipment Hire

CBY

Furniture and Equipment

CBZ

CBX + CBY

CC

Building Operation

CCX

Services Charges

CCY

Equipment

CCZ

CCX + CCY

CD

Business Support

CDX

Catering Costs

CDY

Kitchen Equipment

CDZ

CDX + CDY

CE

Property Management

CEX

Staff Costs

CEY

Information Systems

CEZ

CEX + CEY

CF

Information Technology

CFX

Support Costs

CFY

Computers

CFZ

CFX + CFY

TX

AX+BX+CX+DX+EX+FX

TY

AY+BY+CY+DY+EY+FY

TZ

TX + TY

Total Occupancy Costs

Conceptual framework for measuring occupancy costs

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3.2 Cost measures Based on alignment of the various cost measurement standards currently in existence in combination with feedback from well over 100 industry organisations and government bodies, we propose the following primary cost measures: • Heading CA: Property Occupation Costs (POC) • Heading CB: Adaptation and Equipment Costs (AEC) • Heading CC: Building Operation Costs (BOC) • Heading CD: Business Support Costs (BSC) • Heading CE: Property Management Costs (PMC) • Heading CF: Information Technology Costs (ITC)

Heading CA: Property Occupation Costs (POC) This category includes the total costs of rent, unitary charge, acquisition, disposal and removal, local property taxes, parking charges, associated facilities, occasional space as well as marketing and promotion.

• Annualised capital expenditure is calculated by depreciating any capital costs over a straight line, without any allowance for financing costs (see Section 2.1).

• Property occupation costs should include the full direct cost of labour employed (including line managers) as well as the costs of equipment, materials and external charges.

• All staff costs should be included, incorporating employment and labour tax, pensions, allowances, annual bonuses, overtime, temporary staff fill-in, training, recruitment, travel, welfare, administrative, equipment and other costs.

Category

Definition

CA1 Net Rent

The annual operating expenditure of renting a building or the annualised capital expenditure associated with occupying an owned building.

Organisations should record a figure for rent under at least one of the following headings: • CA1a Rent paid: The actual current annual rent paid to the building owner. This should be recorded for all rented or leased buildings.

• CA1b Rental value: The current annual open market rental value assessed in the context of local contract terms, review periods, escalation, indexation and other conditions. It is highly desirable to collect this figure especially where there is a significant difference from A1a Rent Paid or A1c Notional Rent, for example, where the building is held under a long lease and is not rack-rented.

• CA1c Notional rent: The annual accounting charge calculated by multiplying the value of the asset as set out in the financial statement by the organisation’s weighted cost of capital. With potential differences in weighted cost of capital, occupiers should always record the basis of calculation for notional rent.

Note: When collecting rental figures for benchmarking, the type of rental figure used will need to be carefully considered. It will normally be desirable to use either A1a Rent paid or A1b Rental value. This will allow occupiers to understand their opportunity costs of occupation, an important consideration in creating and assessing the real estates and facilities strategy. Furthermore, rental income should be subtracted from rental expenditure.

CA2 Unitary Charge

The annual operating expenditure of a total real estate and facilities services package, serviced office, etc. on the basis that it is not possible to identify these items separately.

This excludes the costs of all separately charged extra services such food, drinks and snacks (see CD2), reception services (see CD3), reprographics (see CD6), and annual periodic usage and service charges associated with infrastructure (see CF1) and hardware (see CF2) Note: Unitary charges generally apply to space that is held continuously for a period of more than one month.

Charges for space held intermittently or for a period of less than a month should be included under occasional space (see CA7).

CA3 Acquisition, Disposal and Removal

16

The annual operating expenditure associated with the acquisition, disposal and removal of the building, particularly national and local acquisition taxes and duties (for example taxes levied on rent).

This includes the costs of acquisition taxes and duties as well as disposal costs and removal costs, but excludes the costs of professional, agency and brokerage fees associated with acquisitions (see CE1).

IPD Cost Code - Measuring the cost performance of buildings

Category

Definition

CA4 Local Property Taxes

The annual operating expenditure of the building, occupational and environmental tax liability arising under national and local laws and regulations within the subject country, state and municipality. All rebates should be averaged out across the period to which the rebate relates.

This includes the costs of any taxes or rates arising directly from the occupation of the building and levied on the building itself or upon the occupiers of the building, but excludes the costs of all business and sales taxes that are levied on business profits and sales as distinct from the occupation of the building.

CA5 Parking Charges

The annual operating expenditure of rent or licence fee paid for parking provision together with any local building tax charged on any on-site or off-site car parking associated with the building, whether part of the overall lease agreement or paid separately.

CA6 Associated Facilities

The annual operating expenditure of rent or licence fee paid for associated facilities together with any local real estate/facilities tax charged on any on-site or off-site leisure, storage or any other ancillary facility directly associated with the building, whether part of the overall lease agreement or paid separately.

This excludes the costs or archiving (see CD9)

CA7 Occasional Space

The annual operating expenditure of charges for occasionally-used space, which is not managed as part of the end-user’s estate, aggregated over the year. Such space is typically held either for very short periods of less than a month or intermittently (for example, every Tuesday evening).

CA8 Marketing and Promotion

The annual operating expenditure of marketing, promotion and any other costs transferred by a landlord to a tenant as a result of the occupation of the building on the basis that it is not recorded under any other cost category.

This includes the costs imposed by landlords for a tenant’s share of a property’s general marketing and promotion costs as well as any other similar costs.

Note: Common use of this category is found in shopping centres and similar buildings where tenants agree to pay for part of the costs of promoting the shopping centre.

Heading CB: Adaptation and Equipment Costs (AEC) This category includes the total costs of fit out and improvement as well as furniture and equipment.

• Annualised capital expenditure is calculated by depreciating any capital costs over a straight line, without any allowance for financing costs (see Section 2.1).

• Adaptation and equipment costs should include the full direct cost of labour employed (including line managers) as well as the costs of equipment, materials and external charges.

• All staff costs should be included, incorporating employment and labour tax, pensions, allowances, annual bonuses, overtime, temporary staff fill-in, training, recruitment, travel, welfare, administrative, equipment and other costs.

Category

Definition

CB1 Fit out and Improvement

The annualised capital expenditure associated with fit out and improvement of the building. Recommended write off period: 7 years.

This includes the costs of air conditioning, space heating, electrical installations, partitioning, internal walls, woodwork and joinery, wall linings, fixtures, fittings, lighting, flooring, carpeting, tiling, suspended ceilings and signage, but excludes the costs of physical extensions to the building (see CA1), excludes M&E repair and maintenance (see CC4) and security equipment and materials (see CC9).

Note: For retail and/or branch buildings, shop fronts, storage racks, etc. are also included.

CB2 Furniture and Equipment

The annualised capital expenditure associated with furniture and equipment in the building. Recommended write off period: 5 years.

This includes the costs of desks, chairs, pedestals, desk lights, filing cabinets, storage cabinets, shelving, tables, soft furnishings, works of art, blinds, curtains, drapes, mechanical handling equipment and fire extinguishers.

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Heading CC: Building Operation Costs (BOC) This category includes the total costs of consolidated services charge, insurance, internal repair and maintenance, M&E repair and maintenance, external and structural repair and maintenance, minor improvements, internal moves, reinstatement, security, cleaning, waste disposal, internal plants and decorations, grounds maintenance, water and sewerage as well as energy.

Category

• Annualised capital expenditure is calculated by depreciating any capital costs over a straight line, without any allowance for financing costs (see Section 2.1).

• Building operation costs should include the full direct cost of labour employed (including line managers) as well as the costs of equipment, materials and external charges.

• All staff costs should be included, incorporating employment and labour tax, pensions, allowances, annual bonuses, overtime, temporary staff fill-in, training, recruitment, travel, welfare, administrative, equipment and other costs.

Definition

CC1 Consolidated The annual operating expenditure transferred to the building owner for the delivery of building operation services on Services Charge the basis that it is not possible to identify these items separately.

This includes the costs of insurance, internal repair and maintenance, M&E repair and maintenance, external and structural repair and maintenance, minor improvements, internal moves, reinstatement, security, cleaning, waste disposal, internal plants and decorations, grounds maintenance, water and sewerage, and energy.

Note: Services charge revenue should be subtracted from services charge expenditure.

CC2 Insurance

The annual operating expenditure of premiums for insuring the building.

This includes the costs of all building related insurance, liability for excess and any premiums for loss of rent, subsidence, terrorism, fires, floods, burst pipes, explosions, and earthquakes, but excludes the costs of insurance for loss of trade, public liability, damage to or theft of computers, but excludes disaster recovery (see CD7).

Note: Occupiers who self-insure should include an agreed internal risk charge, unless the full costs of any event are borne directly by the occupier under another cost category.

This category may be subdivided into sub-categories: • CC2a Buildings insurance • CC2b Contents insurance • CC2c Engineering insurance • CC2d Terrorism insurance

CC3 Internal Repair and Maintenance

The annual operating expenditure on internal repair and maintenance for the building. Recommended write off period for equipment: 5 years.

This includes the costs of regular redecoration and repair and maintenance of fit out, furniture, and equipment as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of M&E repair and maintenance (see CC4), minor improvements (see CC6), internal moves (see CC7) and reinstatement (see CC8).

CC4 M&E Repair The annual operating expenditure associated with repair and maintenance of all mechanical and electrical and Maintenance equipment in the building. Recommended write off period for equipment: 7 years.

This includes repair and maintenance to lifts, escalators, water and plumbing, sprinkler systems, and fire services as well as repair and maintenance of air conditioning and electrical installations as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of fit out and improvement (see CB1) and security equipment and materials (see CC9) as well as any costs related to manufacturing or business processes.

This category may be subdivided into sub-categories: • CC4a M&E services • CC4b Lifts and escalators • CC4c Suspended access equipment • CC4d Other M&E costs

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IPD Cost Code - Measuring the cost performance of buildings

Category

Definition

CC5 External and The annual operating expenditure associated with repair and maintenance of the exterior and the structure of the Structural Repair building. Recommended write off period for equipment: 10 years. and Maintenance This includes the costs of repairs and maintenance to roofs, external walls, cladding, fenestration, foundations, and drainage as well as external redecoration and external finishes as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of suspended access equipment (see CC4).

This category may be subdivided into sub-categories: • CC5a Planned external and structural maintenance • CC5b Unplanned external and structural repair CC6 Minor Improvements

CC7 Internal Moves

The annual operating expenditure on minor improvements (i.e. expenditures less than £10,000) to the building.

This includes the costs of contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of internal moves (see CC7).

The annual operating expenditure associated with space reorganisation in the building.

This includes the costs of redecoration as well as the costs of moving fit out, furniture, and equipment as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of external moves (see CA3).

CC8 Reinstatement The annual operating expenditure or annualised capital expenditure associated with the anticipated liability for dilapidation and reinstatement at the endof the lease contract of the building.

This includes the costs of reinstatement through a sinking fund, replacement fund, reserve fund or depreciation fund imposed on a tenant by a landlord.

CC9 Security

The annual operating expenditure of securing the building. Recommended write off period for equipment: 5 years.

This includes the costs of access control systems, readers and passes, identity cards and badges, CCTV, detectors, alarms, lighting and central control, fences, intruder detection systems and loudspeakers, vehicular access control and road blocks as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs.

CC10 Cleaning

The annual operating expenditure of cleaning the building. Recommended write off period for equipment: 3 years.

This includes the costs of cleaning desks, chairs and pedestals, floors, carpets and tiles, partitions, internal walls and doors, suspended ceilings and lighting, IT equipment and telephones, WCs, toilets and urinals, pest control and window cleaning as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs.

This category may be subdivided into sub-categories: • CC10a Interior cleaning • CC10b Exterior cleaning

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Category

Definition

CC11 Waste Disposal

The annual operating expenditure of waste disposal from the building. Recommended write off period for equipment: 5 years.

This includes the costs of removing general waste, confidential waste, recycled waste, sanitary waste, toxic waste and composted waste as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs.

This category may be subdivided into sub-categories: • CC11a General waste disposal • CC11b Toxic waste disposal (hazardous and radioactive) • CC11c Confidential waste disposal • CC11d Sanitary waste disposal • CC11e Recycled waste disposal (plastic, metal, paper, glass, wood, cartridges, batteries) • CC11f Composted waste disposal

CC12 Internal Plants and Decorations

CC13 Grounds Maintenance

The annual operating expenditure of plants and decoration in the building. Recommended write off period for equipment: 3 years.

This includes the costs of watering, feeding and pruning of plants and flowers, provision of decoration for festivals such as Christmas, and cleaning and dusting of internal plants and decorations as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs.

The annual operating expenditure of grounds maintenance around the building. Recommended write off period for equipment: 3 years.

This includes the costs of maintaining lawns, borders and window boxes, parking areas, roadways and pavements, greenhouses, pavilions and garden stores, litter clearance and snow clearance as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs.

This category may be subdivided into sub-categories: • CC13a Hard landscaping • CC13b Soft landscaping • CC13c Litter and snow clearance

CC14 Water and Sewerage

The annual operating expenditure of water supply and sewerage for the building.

This includes the costs of water supply and sewerage, but excludes the costs of fit out and improvement (see CB1) and M&E repair and maintenance (see CC4) of water facilities.

This category may be subdivided into sub-categories: • CC14a Water supply • CC14b Sewerage

CC15 Energy

The annual operating expenditure of energy supply to the building.

This includes the costs of electricity, gas, fuel, district heating and all other energy, but excludes the costs of fit out and improvement (see CB1) and M&E repair and maintenance (see CC4) of energy facilities.

This category may be subdivided into sub-categories: • CC15a Electricity • CC15b Gas • CC15c Fuel / oil • CC15d District heating • CC15e Other energy

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IPD Cost Code - Measuring the cost performance of buildings

Heading CD: Business Support Costs (BSC) This category includes the total costs of catering, reception services, courier and external distribution services, post room and internal distribution services, reprographics, disaster recovery, transport as well as archiving • Annualised capital expenditure is calculated by depreciating any capital costs over a straight line, without any allowance for financing costs (see Section 2.1).

• Business support costs should include the full direct cost of labour employed (including line managers) as well as the costs of equipment, materials and external charges.

• All staff costs should be included, incorporating employment and labour tax, pensions, allowances, annual bonuses, overtime, temporary staff fill-in, training, recruitment, travel, welfare, administrative, equipment and other costs.

Category

Definition

CD2 Catering

The annual operating expenditure on catering associated with the building. Recommended write off period for equipment: 5 years.

This includes the costs of food, drinks and snacks, catering equipment and kitchen equipment, crockery and cutlery, and subsidy and vouchers as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of fit out (see CB1), cleaning (see CC10) and energy (see CC15).

Note: Catering revenue should be subtracted from catering expenditure.

This category may be subdivided into sub-categories: • CD2a General catering costs • CD2b Vending machine costs • CD2c Meeting room hospitality

CD3 Reception Services

The annual operating expenditure on reception services associated with the building. Recommended write off period for equipment: 5 years.

This includes the costs of uniforms as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of fit out costs (see CB1), furniture (see CB2), security (see CC9) and hardware (see CF2).

CD4 Courier and The annual operating expenditure on courier and external distribution services associated with the building.

External Distribution Recommended write off period for equipment: 5 years.

Services This includes contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of internal distribution (see CC5).

CD5 Post Room and Internal Distribution Services

The annual operating expenditure on post room and internal distribution services associated with the building.

Recommended write off period for equipment: 3 years.

This includes the costs of distribution and collection of mail, opening and packaging mail, stamping, recording and despatching mail as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of internal distribution (see CC4).

This category may be subdivided into sub-categories: • CD5a Post room services • CD5b Distribution services

CD6 Reprographics The annual operating expenditure on reprographics associated with the building. Recommended write off period for equipment: 3 years.

This includes printers and photocopiers as well contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of consumables such as paper.

This category may be subdivided into sub-categories: • CD6a Central reprographics • CD6b Distributed reprographics

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Category

Definition

CD7 Disaster Recovery

The annual operating expenditure on alternative premises and related equipment for the building. Recommended write off period for equipment: depending on the type of expenditure.

This includes the costs of directly holding contingency buildings, or leasing arrangements for access to contingency space (e.g. with serviced office providers).

CD8 Transport

The annual operating expenditure on transport to and from the building. Recommended write off period for equipment: 3 years.

This includes the costs of bus schemes and transport subsidy as well contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of vehicles provided for the exclusive personal use of members of staff, taxi costs, and car fleet management.

CD9 Archiving

The annual operating expenditure on archiving associated with the building. Recommended write off period for equipment: depending on the type of expenditure.

This includes archiving systems and retrieval systems as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of storage cabinets (see CB2).

This category may be subdivided into sub-categories: • CD9a On-site archiving • CD9b Off-site archiving

Heading CE: Property Management Costs (PMC) This category includes the total costs of real estate management, facilities management, project management as well as other management • Annualised capital expenditure is calculated by depreciating any capital costs over a straight line, without any allowance for financing costs (see Section 2.1).

• Property management costs should include the full direct cost of labour employed (including line managers) as well as the costs of equipment, materials and external charges.

• All staff costs should be included, incorporating employment and labour tax, pensions, allowances, annual bonuses, overtime, temporary staff fill-in, training, recruitment, travel, welfare, administrative, equipment and other costs.

Category

Definition

CE1 Real Estate Management

The annual operating expenditure on real estate management of all activities associated with property occupation (see CA). Recommended write off period for equipment: 3 years.

This includes the costs of strategic planning and reporting, valuations, acquisitions and disposals, contract negotiations and real estate charges as well contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of facilities management (see CE2), project management (see CE3) and other management (see CE4).

This category may be subdivided into sub-categories: • CE1a In-house real estate management • CE1b Outsourced real estate management

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IPD Cost Code - Measuring the cost performance of buildings

Category

Definition

CE2 Facilities Management

The annual operating expenditure on day to day facilities management of all activities associated with adaptation and equipment (see CB), building operation (see CC) and business support (see CD). Recommended write off period for equipment: 3 years.

This includes the costs of workplace management, design and layout, health and safety, helpdesk, concierge services, condition surveys as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of real estate management (see CE1), project management (see CE3) and other management (see CE4).

This category may be subdivided into sub-categories: • CE2a In-house facilities management • CE2b Outsourced facilities management

CE3 Project Management

The annual operating expenditure on intended project management of all activities associated with adaptation and equipment (see CB), building operation (see CC) and business support (see CD). Recommended write off period for equipment: 3 years.

This includes the costs of project management as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of real estate management (see CE1), facilities management (see CE2) and other management (see CE4).

This category may be subdivided into sub-categories: • CE3a In-house project management • CE3b Outsourced project management

CE4 Other Management

The annual operating expenditure of other management associated with the building. Recommended write off period for equipment: 3 years This includes the costs of environmental management, information management and quality management as well as contactor costs and the full costs of employment, special equipment, materials and other associated costs, but excludes the costs of real estate management (see CE1), facilities management (see CE2) and project management (see CE3).

This category may be subdivided into sub-categories: • CE4a Environmental management • CE4b Information management • CE4c Quality management

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Heading CF: Information Technology Costs (ITC) This category includes the total costs of infrastructure, hardware, software as well as support • Annualised capital expenditure is calculated by depreciating any capital costs over a straight line, without any allowance for financing costs (see Section 2.1).

Category

• Information Technology costs should include the full direct cost of labour employed (including line managers) as well as the costs of equipment, materials and external charges.

• All staff costs should be included, incorporating employment and labour tax, pensions, allowances, annual bonuses, overtime, temporary staff fill-in, training, recruitment, travel, welfare, administrative, equipment and other costs.

Definition

CF1 Infrastructure The annualised capital expenditure of infrastructure associated with information and communication technology in the building. Recommended write off period: 5 years.

This includes the costs of hardwired cables and wires as well as wireless components and the annual costs of periodic usage and service charges.

May be subdivided into sub-categories: • CF1a External infrastructure • CF1b Internal infrastructure CF2 Hardware

The annualised capital expenditure of hardware associated with information and communication technology in the building. Recommended write off period: 3 years.

This includes the costs of desktop phones, mobile phones, blackberries, MDAs as well as PCs, laptops and both onsite and off-site servers and the annual periodic usage and service charges.

May be subdivided into sub-categories: • CF2a Telecommunication • CF2b Computers

CF3 Software

The annual operating expenditure on software associated with information and communication technology.

This includes the costs of operating systems and user software, but excludes alarm software (see CC9) and property management software (see CE1, CE2 or CE3).

May be subdivided into sub-categories: • CF3a Operating systems • CF3b User software

CF4 Support

The annual operating expenditure on management of all activities associated with infrastructure (see CF1), hardware (see CF1) and software (see CF3). Recommended write off period for equipment: 3 years.

This includes the full cost of employment for directly employed staff as well as contractor costs, special equipment, materials and other associated costs.

May be subdivided into sub-categories: • CF4a Internal support staff • CF4b Outsourced support staff

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IPD Cost Code - Measuring the cost performance of buildings

4

Ratios and Worked Example

In this chapter we aim to transform data into information by defining cost ratios that can be used for benchmarking purposes.

In addition, we recommend key indicators for reporting purposes.

Clarification is provided through a worked example.

4.1 Budgets and targets

4.2 Cost ratios

Financial budgets and targets lie at the heart of any property management function and it is good practice to state such budgets and targets for each individual building so that management expectations are clear and concise.

By combing our conceptual framework with all cost measures defined, we propose the following cost ratios for cost comparison and benchmarking.

Creating cost ratio targets for an estate is common practice in many organisations. The realism of these targets can be tested by examining the related targets for individual buildings within the estate. This goes to emphasise the importance of the efforts made by all building managers across the organisation towards the achievement of the overall estate-level target.

As for cost ratios, we recommend using per FTE figures.

Although expressing cost ratios on a per square metre or per workstation basis may be common practice, FTE figures provide a richer and more business-relevant picture. Furthermore, it gives management a clear incentive to move towards high capacity utilisation.

Key corporate ratio - As for the key corporate ratio, one can best use Total Occupancy Costs as a percentage of total operating expenses: • Total Occupancy Costs / total operating expenses (%) Primary cost ratios - As for the primary ratios, one can best use Total Occupancy Costs per employees (i.e. Full Time Equivalent), per workstation (i.e. Usable Floor Area), or per square metre (i.e.

Net Internal Area): • Total Occupancy Costs per FTE (£) • Total Occupancy Costs per workstation (£) • Total Occupancy Costs per square metre NIA (£)

The number of personnel is calculated in terms of full-time equivalents. Non-payroll staff, such as staff consultants, contractors, and other outsourced staff, is converted to full-time equivalents on the following basis: • Personnel working > 32 hours per week on a regular basis = 1.0 FTE • Personnel working 24- 32 hours per week on a regular basis = 0.8 FTE • Personnel working 16-24 hours per week on a regular basis = 0.6 FTE • Personnel working 8-16 hours per week on a regular basis = 0.4 FTE • Personnel working < 8 hours per week on a regular basis = 0.2 FTE The number of designated workstations within the building should include both occupied and vacant positions but exclude any within designated meeting rooms or areas. A workstation should have the capacity to act as a satisfactory place of work for one employee, contractor or visitor.

The number of square metres within the building can be expressed as Net Internal Area (NIA is the usable area within a building measured to the internal face of the perimeter walls at each floor level) or following the IPD Space Code, as Usable Floor Area (UFA is the floor area corresponding to the support of all organisational processes).

For manufacturing and retail buildings, Total Occupancy Costs per workstation is a less appropriate denominator. Here Total Occupancy Costs over the value of the goods produced and/or sold is commonly used and more appropriate.

Defining FTE, workstation and square metre

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25

Secondary cost ratios - As for the secondary ratios, one can use any of the six secondary cost measures per employee (i.e.

Full Time Equivalent), per workstation (i.e. Work Floor Area), or per square metre (i.e. Net Internal Area or Usable Floor Area): • Property Occupation Costs per FTE (or workstation or m2 NIA or UFA) • Adaptation and Equipment Costs per FTE (or workstation or m2 NIA or UFA) • Building Operation Costs per FTE (or workstation or m2 NIA or UFA) • Business Support Costs per FTE (or workstation or m2 NIA or UFA) • Property Management Costs per FTE (or workstation or m2 NIA or UFA) • Information Technology Costs per FTE (or workstation or m2 NIA or UFA) Tertiary cost ratios - As for the tertiary ratios, one can use any of the 41 tertiary cost measures per employee (i.e. Full Time Equivalent), per workstation (i.e. Usable Floor Area), or per square metre (i.e. Net Internal Area or Usable Floor Area), such as: • Rent costs per FTE (or workstation or m2 NIA or UFA) • Furniture and Equipment costs per FTE (or workstation or m2 NIA or UFA) • Internal Repair and Maintenance costs per FTE (or workstation or m2 NIA or UFA) • Reception Services costs per FTE (or workstation or m2 NIA or UFA) • Facilities Management costs per FTE (or workstation or m2 NIA or UFA) • Infrastructure costs per FTE (or workstation or m2 NIA or UFA)

Current figure

4.3 Worked example The worked example in this section is based on the portfolio for a company with 67 office building throughout the UK. The total Net Internal Area for the entire portfolio is 94,990 m2, comprises 8,088 workstations and accommodates a total of 7,353 FTE staff. The costs quoted are based on the Cost Code’s categorisation of expenditure and are derived from the 2009 IPD Occupiers Database.

Key corporate ratio and primary cost ratios - Looking at the key corporate ratio, it is instantly clear that 8.94% or total operating expenses is tied up in Total Occupancy Costs, but also that this is 2.07% lower when compared to other insurance companies. Looking at the primary cost ratios, one can see that Total Occupancy Costs per workstation (at £7,703) is almost 5% more expensive when compared with the sector benchmark.

With similar-to-sector Total Occupancy Costs per square metre NIA, but significantly better desk utilisation ratios, however, Total Occupancy Costs per FTE (at £8,037) is almost 8% cheaper when compared with the sector benchmark.

As for the key corporate ratio, the target is to reduce Total Occupancy Costs as a percentage of total operating expenses down to 8.75%. This means that the company is currently 2.2% off target. This target is to be achieved by reducing the space per workstation from 11.74 m2 to 11 m2 whilst increasing the density from 1.1 desk per FTE to 1.05 desk per FTE. By doing so, space per FTE will come down from 12.9 m2 to 11.6 m2. As a result, the Total Occupancy Costs per workstation can come down from £7,307 to £7,040 (currently 3.8% off target) and the Total Occupancy Costs per FTE can come down from £8,037 to £7,392 (currently 8.7% off target). Through more intensive use of the space occupied, however, the cost per m2 will go up, but has been capped at a maximum of £640.

Sector Difference benchmark from benchmark

Prospective target

Difference from target

Key corporate ratio Total Occupancy Costs / Total Operating Expenses

8.94%

9.12%

-2.07%

8.75%

2.2%

Primary cost ratios Total Occupancy Costs per FTE Total Occupancy Costs per workstation Total Occupancy Costs per m2 NIA

£8,037 £7,307 £622

£8,721 £6,977 £638

-7.84% 4.73% -2.48%

£7,392 £7,040 £640

8.72% 3.79% -2.79%

Key corporate ratio and primary cost ratios

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IPD Cost Code - Measuring the cost performance of buildings

Secondary costs ratios - Looking at the secondary cost ratios, a similar pattern emerges in which costs per workstation are higher than the sector benchmark for four out of six measures, but in which costs per FTE are lower than the sector benchmark for five out of six measures. Again this is mainly caused by significantly better desk utilisation ratios at the insurance company investigated.

Current figure

Sector Difference benchmark from benchmark

Prospective target

Difference from target

Secondary cost ratios per FTE Property Occupation Costs Adaptation and Equipment Costs Building Operation Costs Business Support Costs Property Management Costs Information Technology Costs

£3,212 £168 £1,624 £737 £367 £1,930

£3,542 £202 £1,825 £850 £340 £1,961

-9.34% -17.09% -11.05% -13.28% 7.97% -1.59%

£2,932 £152 £1,512 £677 £340 £1,778

8.70% 9.18% 6.87% 8.14% 7.21% 7.88%

Secondary cost ratios per workstation Property Occupation Costs Adaptation and Equipment Costs Building Operation Costs Business Support Costs Property Management Costs Information Technology Costs

£2,920 £152 £1,476 £670 £333 £1,755

£2,835 £162 £1,461 £680 £272 £1,570

2.99% -5.82% 1.05% -1.49% 22.65% 11.79%

£2,793 £145 £1,440 £645 £324 £1,693

4.35% 4.86% 2.43% 3.77% 2.80% 3.50%

£248.62 £12.98 £125.68 £57.06 £28.39 £149.41

£259.14 £14.79 £133.52 £62.18 £24.85 £143.48

-4.06% -12.27% -5.88% -8.23% 14.25% 4.13%

£253.89 £13.18 £130.92 £58.62 £29.46 £153.94

-2.12% -1.58% -4.17% -2.74% -3.78% -3.03%

Secondary cost ratios per m2 NIA Property Occupation Costs Adaptation and Equipment Costs Building Operation Costs Business Support Costs Property Management Costs Information Technology Costs Secondary cost ratios

Tertiary costs ratios - Looking at the tertiary cost ratios, one can easily identify key areas for potential cost savings. Looking at ‘share of total costs’, the most logical areas to focus cost saving efforts are: 1) net rent, 2) hardware costs, and 3) rates. Looking at ‘difference from benchmark’, the most logic areas to focus cost saving efforts are: 1) parking costs, 2) external distribution costs, and 3) acquisition, disposal and removal costs. Combining the two, however, the most logical areas to focus cost saving efforts are: 1) external distribution costs, 2) internal repair and maintenance, and 3) software costs.

It should be noted that reducing space usage (i.e. less space per workstation and/or improved desk utilisation ratios) whilst keeping costs per square metre at current levels, may lead to higher costs savings when compared to simply reducing costs per square metre in any of the cost categories identified above.

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27

Code

Category

Total cost for portfolio (£)

Share of total costs for portfolio (%)

Portfolio mean (£/m2 NIA)

Benchmark mean (£/m2 NIA)

Difference from benchmark (%)

Potential for cost savings (£)

CA CA1 CA2 CA3 CA4 CA5 CA6 CA7 CA8

Property Occupation Costs Net rent Unitary charge Acquisition, disposal and removal costs Rates (local property taxes) Parking costs Associated facilities costs Occasional space costs Marketing and promotion costs

£23,615,939 £18,533,974 £0 £20,898 £5,005,498 £55,569 £0 £0 £0

40.0% 31.4% NA 0.0% 8.5% 0.1% NA NA NA

£248.62 £195.12 £0.00 £0.22 £52.70 £0.59 £0.00 £0.00 £0.00

£259.14 £197.55 £0.66 £0.14 £60.49 £0.24 £0.05 £0.01 £0.00

-4.1% -1.2% NA 57.1% -12.9% 143.8% NA NA NA

£91,822 NA NA £11,942 NA £79,881 NA NA NA

CB CB1 CB2

Adaptation and Equipment Costs Fit out and improvement costs Furniture and equipment costs

£1,232,495 £1,129,431 £103,064

2.1% 1.9% 0.2%

£12.98 £11.89 £1.09

£14.79 £13.56 £1.23

-12.3% -12.3% -11.8%

£0 NA NA

CC CC1 CC2 CC3 CC4 CC5 CC6 CC7 CC8 CC9 CC10 CC11 CC12 CC13 CC14 CC15

Building Operation Costs Net service charges Total insurance costs Internal repair and maintenance costs M&E repair and maintenance costs External repair and maintenance costs Minor improvement costs Internal moves costs Reinstatement costs Security costs Cleaning costs Waste disposal costs Internal plants and flowers costs Grounds maintenance costs Water and sewerage costs Total energy costs

£11,937,868 £1,838,057 £345,764 £1,292,814 £950,850 £369,986 £57,944 £383,760 £0 £1,846,606 £1,472,820 £210,878 £70,293 £111,138 £109,239 £2,877,722

20.2% 3.1% 0.6% 2.2% 1.6% 0.6% 0.1% 0.6% NA 3.1% 2.5% 0.4% 0.1% 0.2% 0.2% 4.9%

£125.68 £19.35 £3.64 £13.61 £10.01 £3.90 £0.61 £4.04 £0.00 £19.44 £15.51 £2.22 £0.74 £1.17 £1.15 £30.30

£133.52 £31.96 £3.90 £9.70 £13.55 £3.34 £0.49 £3.08 £0.00 £16.73 £15.81 £1.67 £0.77 £0.84 £2.12 £29.56

-5.9% -39.5% -6.7% 40.3% -26.1% 16.6% 24.5% 31.2% NA 16.2% -1.9% 32.9% -3.9% 39.3% -45.8% 2.5%

£1,200,195 NA NA £521,124 NA £61,480 £14,190 £119,613 NA £299,121 NA £69,451 NA £43,661 NA £71,554

CD CD1 CD2 CD3 CD4 CD5 CD6 CD7 CD8 CD9

Business Support Costs Telephone costs Catering and vending costs Reception costs External distribution costs Internal distribution costs Reprographics costs Business continuity costs Transport costs Archiving costs

£5,420,129 £0 £1,141,780 £317,267 £1,129,431 £1,397,303 £369,511 £0 £0 £1,064,838

9.2% NA 1.9% 0.5% 1.9% 2.4% 0.6% NA NA 1.8%

£57.06 £0.00 £12.02 £3.34 £11.89 £14.71 £3.89 £0.00 £0.00 £11.21

£62.18 £0.45 £17.61 £3.29 £6.69 £15.99 £3.07 £0.00 £0.00 £15.08

-8.2% NA -31.7% 1.5% 77.7% -8.0% 26.7% NA NA -25.7%

£981,402 NA NA £4,822 £877,884 NA £98,697 NA NA NA

CE CE1 CE2 CE3 CE4

Property Management Costs Real estate management costs Facilities management costs Project management costs Other management costs

£2,696,766 £528,144 £1,656,626 £97,840 £414,156

4.6% 0.9% 2.8% 0.2% 0.7%

£28.39 £5.56 £17.44 £1.03 £4.36

£24.85 £5.11 £14.68 £1.40 £3.66

14.2% 8.8% 18.8% -26.4% 19.1%

£437,184 £46,510 £311,464 NA £79,210

CF CF1 CF2 CF3 CF4

Information Technology Costs Infrastructure costs Hardware costs Software costs Support costs

£14,192,456 £3,249,608 £5,189,304 £4,033,275 £1,720,269

24.0% 5.5% 8.8% 6.8% 2.9%

£149.41 £34.21 £54.63 £42.46 £18.11

£143.48 £38.04 £50.53 £37.93 £16.98

4.1% -10.1% 8.1% 11.9% 6.7%

£1,017,238 NA £421,060 £481,696 £114,482

Total

Total Occupancy Costs

£59,095,654

100%

£622.13

£637.96

-2.5%

£3,727,841

Tertiary cost ratios

28

IPD Cost Code - Measuring the cost performance of buildings

Property performance trees - Acknowledging that many organisations use property performance dashboards and/or property performance trees based on company specific cost measures, the cost categories identified in the IPD Cost Code can easily be clustered and/or re-attributed into any reporting structure preferred. In the example below, fixed occupation costs consist of cost categories CA1 + CA2 + CA4 + CB1 + CB2 + CC1; hard services costs consist of cost categories CA5 + CC2 + CC3 + CC4 + CC5 + CC6 + CC8 + CC14 + CC15 + CD8; soft services costs consist of cost categories CC9 + CC10 + CC11 + CD2 + CD3 + CD4 + CD5 + CD6; property management costs consist of cost categories CE1 + CE2 + CE3 + CE4; and information technology costs consist of cost categories CF1 + CF2 + CF3 + CF4.

Essential information can instantly be recognised from the property performance tree: • Total property costs per FTE occupant currently stand at £7,812 whilst outperforming the sector benchmark by 7% • Total m2 NIA per FTE occupant stand at £12.9 whilst outperforming the sector by 5% • Total property costs per m2 NIA stand at £604 whilst being outperformed by the sector by 2% Further drilling down into total property costs per m2 NIA, one can see that: • Fixed property costs per m2 NIA stand at £280 whilst outperforming the sector benchmark by 8%. Further drilling down highlights that rent, rates, adaptation and equipment, and net service charges are all cheaper when compared to the sector benchmark.

• Hard services costs per m2 NIA stand at £64 whilst being outperformed by the sector by 1%. Further drilling down highlights that parking, internal repair and maintenance, external repair and maintenance, minor improvements, and total energy are all more expensive than the sector benchmark, but also that total insurance, M&E repair and maintenance, and water and sewerage are all cheaper when compared to the benchmark.

• Soft services costs per m2 NIA stand at £83 whilst being outperformed by the sector benchmark by 3%. Further drilling down highlights that security, waste disposal, reception, external distribution, and reprographics are all more expensive than the sector benchmark, but also that cleaning, catering and vending, and internal distribution are all cheaper when compared to the benchmark.

• Property management costs per m2 NIA stand at £28 whilst being outperformed by the sector by 15%. Further drilling down highlights that real estate management, facilities management, and other management are all more expensive than the sector benchmark, but also that project management is cheaper when compared to the benchmark.

Total m2 NIA per workstation 93

11.7 m2

Total m2 NIA per FTE occupant 105

12.9 m2

Workstation provision ratio per FTE 112

1.10

Total property costs per FTE occupant 107

£7812

Total property costs per m2 NIA 102 Total fixed occupation costs per m2 NIA 108

£280

Total hard services costs per m2 NIA 99

Total property management costs per m2 NIA 85

£605

£28

Total soft services costs per m2 NIA

£64

97

£83

Total information technology costs per m2 NIA 96

£149

Property performance tree with monetary values and sector benchmarks

• Information technology costs per m2 NIA stand at £149 whilst being outperformed by the sector benchmark by 4%. Further drilling down highlights that hardware, software, and support are all more expensive than the sector benchmark, but also that infrastructure is cheaper when compared to the benchmark.

Further drilling down into total m2 NIA per FTE occupant, one can see that: • Total m2 NIA per workstation stands at 11.7 m2 whilst being outperformed by the sector benchmark by 7%.

• Workstation provision ratio per FTE stands at 1.1 whilst outperforming the sector benchmark by 12%.

IPD Cost Code - Measuring the cost performance of buildings

29

30

IPD Cost Code - Measuring the cost performance of buildings

5

Applying the Code

In this chapter we explain how you can apply the Cost Code in everyday practice. To guarantee accurate comparisons between organisations and/or buildings, contextual data needs to be collected as well as cost data. For a complete overview on how to apply the IPD Cost Code, please consult Appendix C Measurement Template.

5.1 Assessing cost performance

5.2 Data collection

The key purpose of using the IPD Cost Code is to measure, analyse and report occupancy costs and subsequent cost performance of buildings and/or portfolios. Once cost data, along with contextual data, has been assembled it will be possible to convert it into cost ratios that will help to: • Gain clarity on occupancy costs of the buildings we use and occupy • Create cost performance targets and track progress over time • Support effective decision-making on expenditure and cost allocation • Accurately and confidently communicate financial improvements • Enable benchmarking against other organisations

Objective comparisons and subsequent realistic targets and truly informed decisions can only be made when spatial data is put in context. Therefore it is important to collect contextual data on the property itself, its users and the workstations. For more details, please see Appendix C - Measurement Template.

1 - Property 1A - Office address 1B - Industry sector 1C - Building type 1D - Building location 1E - Building condition 2 - Users

With a robust dataset for a building and/or a portfolio in place, benchmarking can be used to compare cost performance against an appropriate peer group of similar occupier organisations and/or against other buildings within a portfolio.

Based on the outcome of this comparison exercise, one can identify low performance buildings, set realistic cost performance targets, and ultimately make informed decisions.

2A - Employees 2B - Contractors 2C - Visitors 3 - Workstations 3A - Open workstations 3B - Semi-open workstations 3C - Enclosed workstations 4 - Core operating hours Collecting contextual data

IPD Cost Code - Measuring the cost performance of buildings

31

In addition, it is advisable to collect core spatial and environmental data to provide a more balanced view of property performance. For more information on how to exactly collect this data, please feel free to download complimentary copies of the IPD Space Code and the IPD Environment Code from www.ipdoccupiers.com.

S - Spatial data

E - Environmental data

SA - Total Floor Area SB - Internal Floor Area SC - Usable Floor Area SD - Work Floor Area SE - Surplus Floor Area

EA - Energy Consumption EB - Water Usage EC - Waste Production ED - Transport and Travel EE - Equipment and Appliances

Collecting spatial data and environmental data

With consistent collection of cost data being the key purpose of the IPD Cost Code, a clear set of cost components is needed.

Providing both the right amount of granularity to allow crossborder comparisons, and sufficient detail to suit occupier needs, we developed the following fields for the collection of cost data.

For more details, please see Appendix C - Measurement Template.

CA - Property Occupation Costs CA1 - Net Rent CA1a - Rent paid CA1b - Rental value CA1c - Notional rent CA2 - Unitary Charge CA3 - Acquisition, Disposal and Removal CA4 - Local Property Taxes CA5 - Parking Charges CA6 - Associated Facilities CA7 - Occasional Space CA8 - Marketing and Promotion

CB - Adaptation and Equipment Costs CB1 - Fit out and Improvement CB2 - Furniture and Equipment

32

IPD Cost Code - Measuring the cost performance of buildings

CC - Building Operation Costs CC1 - Consolidated Services Charge CC2 - Insurance CC2a - Buildings insurance CC2b - Contents insurance CC2c - Engineering insurance CC2d - Terrorism insurance CC3 - Internal Repair and Maintenance CC4 - M&E Repair and Maintenance CC4a - M&E services CC4b - Lifts and escalators CC4c - Suspended access equipment CC4d - Other M&E costs CC5 - External and Structural Repair and Maintenance CC5a - Planned external and structural maintenance CC5b - Unplanned external and structural repair CC6 - Minor Improvements CC7 - Internal Moves CC8 - Reinstatement CC9 - Security CC10 - Cleaning CC10a - Interior cleaning CC10b - Exterior cleaning CC11 - Waste Disposal CC11a - General waste disposal CC11b - Toxic waste disposal CC11c - Confidential waste disposal CC11d - Confidential waste disposal CC11e - Recycled waste disposal CC11f - Composted waste disposal CC12 - Internal Plants and Decorations CC13 - Grounds Maintenance CC13a - Hard landscaping CC13b - Soft landscaping CC13c - Litter and snow clearance CC14 - Water and Sewerage CC14a - Water supply CC14b - Sewerage CC15 - Energy CC15a - Electricity CC15b - Gas CC15c - Fuel / oil CC15d - District heating CC15e - Other energy

CD - Business Support Costs CD2 - Catering CD2a - General catering costs CD2b - Vending machine costs CD2c - Meeting room hospitality CD3 - Reception Services CD4 - Courier and External Distribution Services CD5 - Post Room and Internal Distribution Services CD5a - Post room services CD5b - Distribution services CD6 - Reprographics CD6a - Central reprographics CD6b - Distributed reprographics CD7 - Disaster Recovery CD8 - Transport CD9 - Archiving CD9a - On-site archiving CD9b - Off-site archiving

CE - Property Management Costs CE1 - Real Estate Management CE1a - In-house real estate management CE1b - Outsourced real estate management CE2 - Facilities Management CE2a - In-house facilities management CE2b - Outsourced facilities management CE3 - Project Management CE3a - In-house project management CE3b - Outsourced project management CE4 - Other Management CE4a - Environmental management CE4b - Information management CE4c - Quality management

CF - Information Technology Costs CF1 - Infrastructure CF1a - External infrastructure CF1b - Internal infrastructure CF2 - Hardware CF2a - Telecommunication CF2b - Computers CF3 - Software CF3a - Operating systems CF3b - User software CF4 - Support CF4a - Internal support staff CF4b - External support staff

With both contextual data and cost data collected, you can create the appropriate ratios and indicators as explained in the previous chapter. Recommendations to improve cost performance over time can be found in the next chapter.

5.3 Case studies Below, three case studies highlight how application of the IPD Cost Code benefits various organisations.

OFFICE OF GOVERNMENT COMMERCE The Office of Government Commerce (OGC) is an independent office of HM Treasury, established to help Government deliver best value from its spending. The OGC works with Government Departments, their Executive Agencies and other arms length bodies to ensure best value from the Government's central Civil Estate through stronger performance management and guidance.

OGC provides policy standards and guidance on best practice in procurement, projects and strategic estate management, and monitors and challenges Government Departments' performance against these standards, grounded in an evidence base of information and assurance. It also works to reduce any negative environmental impacts that arise from the estate or the use of it.

Total Occupancy Costs and targets For the Financial Year 2007/08, the total annual costs associated with running the central civil estate is estimated at £3.5bn per annum. The Government has set an ambitious target of achieving between £1bn and £1.5bn of savings by 2013 from its running of the Civil Estate. A key component in delivering this is the High Performing Property (HPP) strategy launched in 2006, which ensures efficient management of property assets is championed at board-level in Government Departments and becomes an integral part of business planning and delivery. OGC’s benchmarking, mapping and database tools support departments in making strategic property planning decisions and in managing their estate efficiently. With the IPD Cost Code at the heart of their electronic Property Information Mapping Service (ePIMS), the Cost Code plays a crucial role in achieving the targets set.

Roadmap to asset management excellence The HPP initiative is a major change programme that challenges Government to bring about a significantly smaller, more sustainable and agile central civil estate creating value for the citizen. Under HPP, Government accommodation will be acquired on the basis of whole-life value to meet the well-defined business needs.

Collecting cost data

IPD Cost Code - Measuring the cost performance of buildings

33

HPP sets out clear and constructive actions and milestones for all departments and agencies: • Stronger leadership and integration • A significant programme of benchmarking • A drive to strengthen skills and capability • Increased powers of review and challenge It is in establishing ‘a significant programme of benchmarking’ where the IPD Cost Code has played and will continue to play a major role. Providing a comprehensive framework with clear definitions and constructive benchmarks, the Cost Code sits at the heart of the Government’s electronic Property Information Mapping Service (ePIMS).

Role of the IPD Cost Code The IPD Cost Code sets out an internationally acknowledged framework for property cost categorisation with clear definitions to provide the consistency essential to effective internal and external benchmarking. This consistency coupled with an emphasis on the value of data in effective management has enabled reliable and like for like comparison between and across buildings and estates in the civil estate.

Gathering and structuring clearly defined cost data has: • Promoted and facilitated knowledge exchange between central government departments and the arms length bodies they sponsor; • Supported the communication of cost data and information through credible and trusted reporting; • Increased the value and potential of data through its effective use in property benchmarking.

Property Information Mapping Service Efficient management across the Civil Estate is dependent on the availability of accurate and up-to-date information and the ability to interpret and use it effectively. To support the central role which information plays in understanding and shaping the future Government estate, common standards and definitions are essential. The IPD Cost Code has been adopted and implemented as the basis for OGC cost categorisation and provides a robust foundation for defining data elements on the Government’s electronic Property Information Mapping Service (ePIMS).

OGC has developed and managed ePIMS as the Government’s central property information database. Since 2005 its use has been a mandatory for all departments and their executive agencies and other arm's length bodies. The system has been progressively developed so that today ePIMS supports and provides a centralised reporting database with a comprehensive dataset covering of all central Government property holdings.

34

IPD Cost Code - Measuring the cost performance of buildings

Ministry of Justice Department for Work and Pensions HM Revenue and Customs Business Innovation & Skills Home Office Ministry of Defence Department for Transport Department for Environment Food and Rural Affairs Department of Health Communities and Local Government Chancellor's Departments (excluding HMRC) Law Officers Departments Department for Children Schools and Families Foreign & Commonwealth Office Department for Culture Media and Sport Other Departments (< 100,000 m2) Share of reported central civil estate by Total Occupancy Costs

The added value of benchmarking Prompted by the significant scope for property to be used more efficiently and effectively by central government, OGC implemented a pathfinder property benchmarking service in 2005. Property benchmarking has since become pivotal to OGC’s efforts to support Government departments in delivering best value from the estate.

Using ePIMS as its data platform to support property benchmarking, OGC has worked in partnership with IPD to deliver and develop the service the participation in which was mandated across central Government from April 2008. Both HPP and ePIMS have received international recognition as leading exemplars of tools to ensure effective management of public sector real estate.

Achieving cost effectiveness Efficiency remains a key objective for public sector occupiers and translates into not only cost reduction, but also space optimisation across the central civil estate. OGC has set standards for workspace efficiency that challenge organisations to be more imaginative about the way they use space. The setting of standards and the ability to monitor performance raises questions and challenges, and space use has to be justified.

Through benchmarking it is becoming increasingly obvious where workspace does not meet these standards, and increasingly decision makers are taking notice.

The pressure to save money in government is relentless and central government occupiers, in common with the private sector, have focused attention on occupational space efficiency, becoming more rigorous in their management of property costs whilst balancing this with a focus on improving the quality of the work environment. Benchmarking enables businesses to measure and monitor both cost performance and space performance. Furthermore, access to clearly structured and consistent data aids transparency in reporting and benefits not only the interests of business users and finance teams, but also the UK citizen.

“For any organisation, monitoring and measuring performance are fundamental to improving the management of resources and to the delivery of services. Adopting a consistent and industry recognised set of property codes and clearly defined data elements has provided the common and credible data source which sits at the centre of our efforts to promote better and more effective property management across the public sector” Richard Graham, Head of Property Performance Improvement, Office of Government Commerce.

Summary Objective assessment of the performance of the government estate presents a wide range of complex challenges, but is critical to a robust assessment of the efficiency of the estate. The real progress being made by government departments in delivering efficient, effective and sustainable property solutions is built on quality information about their own performance and in being able to interpret it in a consistent and meaningful way.

Sources • OGC (2007), High Performing Property Implementation Plan Delivering a transformed Government Estate.

• OGC (2009), The State of the Estate in 2008 - A report on the efficiency and sustainability of the Government estate.

AXA GROUP AXA is a global financial services organisation employing over 200,000 people worldwide. Local organisations are largely independently managed, but when aggregated, AXA is spending around €1bn per annum on their operational real estate. They do not operate a central ‘command and control’ model, but are organised around a matrix structure allowing local organisations flexibility to determine their own business plans to include regional property portfolio strategies With this level of spend, it was recognised that it was important to develop the ability to ensure consistent portfolio management to the highest standards. Subsequently, a project was set up to build Global Corporate Real Estate Management capabilities.

Objectives Prior to this project, AXA used varying measurement standards for recording cost and space data across the organisation. There were also varying levels of organisational design and maturity in terms of property management within each organisation. By using the IPD Codes, they were able to rapidly arrive upon a consistent language through which to identify key data. This made it possible to gather a consistent and logical dataset without an extended conversation about which set of definitions to use. The resultant data allows regions to communicate with each other, to define a performance language and enables presentation of concerted information to the Global Management Board.

Key findings In reviewing a wide variety of (international) measurement standards available, it was recognised that the IPD Codes are available in three languages, which significantly eased roll-out to most geographical regions AXA occupies. Through the use of the IPD Cost, Space and Environment Codes, they were able to rapidly construct and adopt a set of key metrics with which to measure performance globally.

The remaining challenges evolve around consistently collecting data on occupants as it was found that the HR and Real Estate teams have different views of FTE and headcount.

Challenges Using the metrics gathered through the IPD methodology, AXA is now able to identify what ‘best practice’ looks like, using corporate metrics focussing on cost per occupant, space per occupant and energy consumption per occupant. Combining such data with employee responses on productivity and satisfaction provided a complete and balanced view of performance levels.

IPD Cost Code - Measuring the cost performance of buildings

35

Categorise these metrics under ‘Employee, Efficiency and Environmental’ headers enabled application of a global strategy for continuous improvement against these high level measures.

By using these measures, central support to regional decisionmaking processes concerning portfolio strategies is now possible. This significantly simplifies a complex topic and helps to accurately understand what is going on in the regions.

Next steps AXA can now start to look at measures such as energy consumption or cost per employee against local benchmarks, or across regions and identify where there are issues. By conducting internal comparisons and looking at the performance ‘exceptions’, they can focus attention and additional support where it is needed most. This is seen as particularly important in managing real estate risk.

As for environmental management, AXA is currently looking to implement global energy consumption targets, based on the Environment Code methodology. This will help them manage towards their global target of a group-wide 20% reduction in energy consumption.

Conclusion In conclusion, the IPD Codes are instrumental in enabling straightforward performance measurement, building credibility through accurate data collection, measurement and analysis, and identifying ‘best practice’ through benchmarking. The Codes are seen as particularly useful for corporate occupiers who are becoming more global in their real estate thinking and regarded as essential tools in the Real Estate Director’s arsenal - not least as it enables them to talk to board members in a concise and meaningful fashion.

36

IPD Cost Code - Measuring the cost performance of buildings

CENTRICA Centrica secure and supply gas and electricity for millions of homes and businesses and offer a distinctive range of home energy solutions and low-carbon products and services. Centrica businesses in the United Kingdom comprise: • British Gas • Centrica Energy • Centrica Storage • Dyno Group • Direct Energy Property portfolio Centrica’s UK office portfolio comprises just over 128,000 m2 NIA across 17 properties and accommodates just over 15,000 FTE occupants. When Centrica Group Property embarked on their performance measurement exercise in 2005, they were interested in gaining a deeper understanding of running costs of the office estate and exploring ways in which costs could be managed down without adversely affecting customer service levels.

Following the award of the new four year Total Facilities Management contract in 2005, Centrica Group Property were keen to work in partnership with the service provider to put in place the following four year plan. Key annual milestones for the contract included: • 2005 - Mobilisation and transition of contract • 2006 - Deeper understanding of costs of service lines and rationalisation of TFM supplier base • 2007 - Implementation and management of cost reduction program • 2008 - Reshaping the management cost base and improving internal customer service Use of Cost Code Centrica chose to adopt and implement the IPD Cost Code for the following reasons: • Ease of implementation - There was a close match between Centrica ledger codes and the IPD Cost Code categories • Ease of use - Definitions in the Cost Code were clear and concise, allowing the property team to have visibility across spend areas • Industry standard - Centrica were interested in achieving ‘best practise’ in all areas, and the Code being recognised as the industry’s ‘best practise’ for measuring occupancy costs fitted neatly into this paradigm • Benchmarking - The IPD Cost Code allowed for robust benchmarking in the utilities sector, thereby increasing the understanding of specific cost drivers

Key findings Active use of the Cost Code and subsequent benchmarking led to a number of key findings: • Opportunities for Centrica ledger codes to be adjusted and updated to improve drilling down into cost lines and reflect how service lines are managed • Anomalies present at certain properties highlighted disproportionate spends when compared to rest of the Centrica estate and the IPD Cost Code helped to identify key drivers of operation costs in the estate • Opportunities for cost reduction in service lines where these costs were out of sync with the utilities sector benchmark (e.g. repair and maintenance was in the upper quartile of the utilities sector) • Directions in restructuring the property management team, in order to better meet the business need and achieve cost efficiencies

Challenges Implementation of the Code also helped to identify a number of challenges: • The level of detail and simplicity of the Cost Code methodology made it’s implementation at Centrica a success.

It is recognised at Centrica that ongoing education of the Cost Code (especially with outsourced partners) is also vital to this success, since the Code served as a ‘common language’ which both parties understood and were able to apply. This mutual standpoint, not only enhanced the relationship, but also contributed to the efficiency programme being delivered in 2008/2009.

• In 2009, the Cost Code also formed the base to measure and benchmark whether the TFM contract was meeting the business need at the lowest possible cost (i.e. Value for Money). The study concluded that the TFM contract could meet the business need, while achieving cost savings of 24% (see figure below).

200

RPI Property Occupation Repair and maintenance Security Cleaning Utilities Catering Facilities Management

180 160 140 120 100 80 60 40 20 0

2005

2006

2007

2008

2009 projection

Centrica indexed cost trends (£ per m2 NIA)

IPD Cost Code - Measuring the cost performance of buildings

37

38

IPD Cost Code - Measuring the cost performance of buildings

6

Cost optimisation

In this chapter we highlight various ways that can help to significantly reduce the Total Occupancy Costs of an organisation. First we focus on occupancy costs drivers before highlighting the more strategic decision that may influence the more important driver of the amount of space held by an organisation.

6.1 Occupancy cost drivers Whilst the IPD Cost Code will help identify cost differences between one building or portfolio and another, it will not explain why these differences exist. Subsequently, it is important to fully understand the major drivers that influence Total Occupancy Costs. An overview of the most relevant occupancy cost drivers is shown in the following Table.

CA

Property Occupation

Cost drivers

CA1

Net Rent

CA2

Unitary Charge

CA3 CA4 CA5 CA6 CA7 CA8

Acquisition, Disposal and Removal Local Property Taxes Parking Associated Facilities Occasional Space Marketing and Promotion

Location, accessibility, building type, use, construction, quality, age, condition, specification, length of accommodation contract and contract terms and conditions.

As A1 plus service level agreements, structure and costs of financing, availability guarantees, term of contract, exit provisions etc.

Local/national fiscal policy.

Local/national fiscal policy, rental/capital value, headcount.

Number of spaces, security control, adjacency, location, covered/multi-storey/open lot.

Type, location and specification.

Workspace hours, location, service provided.

Type of building.

CB

Adaptation and Equipment

Cost drivers

CB1 CB2

Fit out and Improvement Furniture and Equipment

Specification, materials, finishes, quality and building location.

Specification, types, finishes, quality, quantity discount, delivery time, access and installation/erection.

IPD Cost Code - Measuring the cost performance of buildings

39

CC

Building Operation

Cost drivers

CC1 CC2 CC3

Consolidated Services Charge Insurance Internal Repair and Maintenance

CC4

M&E Repair and Maintenance

CC5

External and Structural Repair and Maintenance Minor Improvements Internal Moves Reinstatement Security

Services provided, type of property, location, rental value.

Type of policy, special conditions/exceptions, number of buildings, locations and excess.

Redecoration cycle, lease terms, quality standards, use, density of occupation and types of internal finishes and surfaces.

Initial installation guarantees and warranties, specification and distribution, intensity and type of building use, cooling/heating loads, M&E equipment.

Building construction, lease terms, design and external building fabric.

CC6 CC7 CC8 CC9

CC12 CC13 CC14 CC15

Internal Plants and Decorations Grounds Maintenance Water and Sewerage Energy

User demand.

Rate of churn, inclusion of furniture and storage policy.

Scope of adaptations and terms of accommodation contract.

Specification of fixed equipment, hours of manned security cover, number of access points, size of grounds, remote security policy, patrol policy, staff per square metre, building use.

Cleaning specification and frequency, surface types, special cleaning requirements, quantity discount, local cost of labour.

Quantity of waste and type. Recycling targets, national /local arrangements or legal requirements.

Plant policy, specification and frequency of plant maintenance etc.

Type and size of grounds.

Staff occupancy and litres per day supplied.

Operating hours, building age, air conditioning.

CD

Business Support

Cost drivers

CD2

Catering

CD3 CD4

CD6 CD7

Reception Services Courier and External Distribution Services Post Room and Internal Distribution Services Reprographics Disaster Recovery

CD8

Transport

CD9

Archiving

Specification of canteen areas, food subsidy policy, meals per day, opening hours, number/type vending machines per square metre.

Number of visitors per day, opening hours, local cost of labour.

Number/size/weight/destination/delivery time/tracking requirements of letters and parcels per week.

Number/size/weight of letters and parcels delivered to the building. Packaging, opening and distribution requirements.

Number, type and use of photocopiers. Volume per month of copies made.

Number, specification and location of workstations required as percentage of total workstations. Dedication and sharing limits with other disaster recovery customers of service provider (for example 1 of 6 or 1 of 12 per allocated workstation).

Specification of staff transport policy including transport subsidies. Number of executive cars and chauffeurs.

Archiving and retrieval policy.

CE

Property Management

Cost drivers

CE1 CE2 CE3 CE4

Real Estate Management Facilities Management Project Management Other Management

Rate of real estate expansion/contraction.

Number, size and complexity of service contracts under management.

Number, size and complexity of capital projects.

Number, size and complexity of tasks.

CC10 Cleaning CC11 Waste Disposal

CD5

40

IPD Cost Code - Measuring the cost performance of buildings

CF

Information Technology

Cost drivers

CF1 CF2

Infrastructure Hardware

CF3 CF4

Software Support

Geographic location and number of sites, capacity and bandwidth of infrastructure.

Number, specifications and functionality of phones and number, specifications and capacity of computers/servers.

Number, specifications and licensing structure of software packages.

Number, size and complexity of tasks.

Occupancy cost drivers

6.2 Strategic decisions Recognising that the amount of space held by an organisation is undoubtedly the most important cost driver, this section focuses on space charging, serviced offices, and property outsourcing.

For more information on achieving favourable space ratios, feel free to download a complimentary copy of the IPD Space Code at www.ipdoccupiers.com.

Space charging The essence of space charging is the fair allocation of costs based on the utilisation of space and services. One of the main benefits is that it forces businesses and business units to carefully consider requirements concerning space allocation and service needs as well as office locality and proximity to clients.

This appraisal of ‘affordability’ will typically drive back-office functions out of the most expensive locations and provide impetus to space efficiency initiatives. It should be noted, however, that accuracy and transparency concerning both property occupation costs and usable floor area are essential to effective space charging. Subsequently, a constructive audit of information is to be carried out prior to space charging.

In its most simple form, space charging can be based on the amount of usable floor area allocated to a business or business unit. In a more complex form, space charging can be based on the actual utilisation of space and services within a building.

These two extremes can be described below: • Allocation - Total Occupancy Costs for property are divided by the total amount of usable floor area in the estate or building, with the charge for each business unit being calculated on the per unit space charge multiplied by the usable floor area occupied.

• Utilisation - Each space is charged according to who books or uses it, similar in charging terms to a serviced office or office hotel The utilisation approach will require more resources to support effective operation. However, it will typically lead to more effective use of space as well as a greater understanding of how and when space is actually utilised. In reality, the balance between accuracy and practicality will result in a mixed-mode approach to formulate the space charge for an organisation.

IPD Cost Code - Measuring the cost performance of buildings

41

Space charging based on actual utilisation of space and service within a building or any mixed-mode approach can be calculated as follows:

(

Utilised floor area X Total floor area

Shared occupancy costs

)

+

Use-based occupancy costs

Basic formula for space charging

In this formula, shared occupancy costs and use-based occupancy costs could be determined as follows: Shared

Use-based

CA1 CA2 CA3 CA4

CA5 CA6 CA7 CA8

Net Rent Unitary Charge Acquisition, Disposal and Removal Local Property Taxes

Parking Charges Associated Facilities Occasional Space Marketing and Promotion

CB1 Fit out and Improvement

CB2 Furniture and Equipment

CC1 Consolidated Services Charge CC2 Insurance CC3 Internal Repair and Maintenance CC4 M&E Repair and Maintenance CC5 External and Structural Repair and Maintenance CC6 Minor Improvements CC8 Reinstatement CC9 Security CC10 Cleaning CC11 Waste Disposal CC12 Internal Plants and Decorations CC13 Grounds Maintenance

CC7 Internal Moves CC8 Reinstatement CC9 Security

CD2 CD3 CD5 CD7

Catering Reception Services Post Room and Internal Distribution Services Disaster Recovery

CD4 CD6 CD8 CD9

CE1 CE2 CE3 CE4

Real Estate Management Facilities Management Project Management Other Management

CF1 Infrastructure CF4 Support

CF2 Hardware CF3 Software

Typical split between shared occupancy costs and use-based occupancy costs

42

Courier and External Distribution Services Reprographics Transport Archiving

IPD Cost Code - Measuring the cost performance of buildings

Serviced offices Serviced offices or office hotels allow for flexible use of space as and when it is needed. Typically, core services are incorporated within the base charge whilst charges for on-demand services such as photocopying are added separately. Base charges should be allocated to category CA2 Unitary charge, whereas additional charges should be allocated to the relevant cost category.

The following invoice from a serviced office can be categorised as follows: Base charge

A2 Unitary charge

Additional charges Reception services - Travel and transport bookings - Courier arrangements

NA CD4 External distribution costs

Catering services - Refreshments - Business catering

CD2 Catering and vending costs CD2 Catering and vending costs

Communication services - Line rental - Incoming faxes - Outgoing mail

CF1 Infrastructure costs CD5 Internal distribution costs CD4 External distribution costs

Reprographic services - Photocopying - Binding and laminating

CD6 Reprographics costs CD6 Reprographics costs

Meeting services - Meeting room hire - AV equipment hire

CA2 Unitary charge CF2 Hardware costs

In addition to the unitary charge stored under CA2, the following costs are typically charged as extra costs and should be recorded under the appropriate cost category: CA4 CB1 CB2 CC2 CC7 CC9 CC14 CC15 CD2 CD8 CD9 CE1 CE2 CE3 CE4 CF1 CF2 CF3 CF4

Local Property Taxes Fit out and Improvement Furniture and Equipment Insurance Internal Moves Security Water and Sewerage Energy Catering Transport Archiving Real Estate Management Facilities Management Project Management Other Management Infrastructure Hardware Software Support

Cost categorisation for outsourced properties

Cost categorisation for serviced offices

Property outsourcing Property outsourcing tends to operate under long term contracts of 15 to 25 years, typically with break clauses to leave the premises before the end of this contract. More often than not, services are bundled into the contract sum (similar to serviced offices). In such cases it becomes very difficult - if not impossible - to disaggregate the total occupancy costs.

Where bundled services are included within the overall charge for the building there is normally an element of whole life costing, taking into account the gradual depreciation of the asset throughout its expected life. Such whole life costing should be ignored, as it is an implicit part of the property charge and can only normally be calculated by suppliers. The same principle applies if there is a risk premium payable for early termination of the contract agreement for any one or more buildings.

IPD Cost Code - Measuring the cost performance of buildings

43

References

BCO (2005), BCO Guide: Best practice in the specification for offices, Reading: British Council of Offices.

PCA (2008), Method of Measurement, Australia: Property Council of Australia.

BIFM (1996), BIFM Facilities Management Measurement Protocol, Essex: Saffron Walden.

REN (1993), Real Estate Norm, Nieuwegein: Stichting Real Estate Norm Nederland.

BMI (2007a), Review of Occupancy Costs, London: Building Cost Information Service.

REN (1994), Real Estate Norm Quick Scan, Nieuwegein: Stichting Real Estate Norm Nederland.

BMI (2007b), Review of Maintenance Costs, London: Building Cost Information Service

RICS (2007) Code of Measuring Practice - Service Charges in Commercial Property, Coventry: Royal Institution of Chartered Surveyors.

BOMA (2004), Functional Accounting Guide & Chart of Accounts for Industrial Properties, Washington: Building Owners and Managers Association.

RICS (2007), Code of Measuring Practice - A guide for property professionals, Coventry: Royal Institution of Chartered Surveyors.

BOMA (2008), Experience Exchange Report, Washington: Building Owners and Managers Association.

Williams, B. (2001), Facilities Economics in the European Union, Bromley: Building Economics Bureau.

CBI (2008), Property for Business - An essential guide for senior executives, London: Confederation of British Industry.

GEFMA (1996), Kostenrechnung im Facility Management, Bonn: Deutscher Verband f端r Facility Management.

IFMA (2008), Operations and Maintenance Benchmarks, USA: International Facility Management Association.

IFMA (2009), Operations and Maintenance Benchmarks Survey, USA: International Facility Management Association.

IMA (2008), Practice of Management Accounting, Montvale: Institute of Management Accountants.

IPD (2007), IPD Environment Code - Measuring the Environmental Performance of Buildings, London: IPD Occupiers.

IPD (2008), IPD Space Code - Measuring the Space Performance of Buildings. London: IPD Occupiers.

IPD Occupiers (2009), Corporate Occupier Trends 2008, London: IPD Occupiers.

NEN 2580 (2003), Terms of facilities - Classification and definition, Delft: Netherlands Normalisation Institute.

PCA (2000), Asset Performance Scorecard, Australia: Property Council of Australia.

44

IPD Cost Code - Measuring the cost performance of buildings

Appendix A - Reconciliation Guide

In the spirit of moving towards a single global standard for the measurement of occupancy costs, this appendix compares the IPD Cost Code with three key standards, mapping the main categories of each standard to our cost categories.

1. The BOMA Chart of Accounts 2. The NEN Terms for Facilities 3. The RICS Code of Measuring Practice

Current Assets 10000-19000

NA

Current Liabilities 20000-29000

NA

Revenue/Income 30000 Industrial Rent 31000 Office Rent 32000 Parking Income 33000 Other Space Rent 34000 Additional Tenant Service Income 34100 Cleaning 34200 Repairs/Maintenance 34300 Utility (after-hour charges) 34400 Security

CA1 CA1 CA5 CA6 NA CC9 CC3-CC6 CC14, CC15 CC9

Operating expenses 40000 Cleaning Expenses 40100 Payroll, Taxes, Fringes 40200 Routine Contract Services (Interior) 40300 Specialised Contract Services 40400 Supplies/Materials/Miscellaneous 40500 Trash Removal 41000 Repairs/Maintenance 41100 Payroll, Taxes, Fringes 41150 Comprehensive R/M Contract 41200 Elevator Contracts/Materials 41300 HVAC Contracts/Materials 41400 Electrical Contracts/Materials 41500 Structural/Roofing 41600 Plumbing 41700 Fire and Life Safety 41800 General Building R/M (Interior) 41850 General Building R/M (Exterior) 42000 Utilities

CC10 CC10 CC10 CC10 CC11 CC3-CC6 CC3-CC6 CC4 CC4 CC4 CC5 CC3 CC4 CC3 CC5

This appendix also describes the objectives of the PISCES data exchange standards for occupancy costs BOMA Chart of Accounts The BOMA Chart of Accounts is designed for the use of property managers and owners in the United States and is used by various corporate occupiers to record their property costs.

The table below reconciles the BOMA standard with the IPD Cost Code.

42100 42200 42300 42400 42500 42600 42700 42800 43000 44000 45000 45100 45200 45300 45400 45500 45600 46000 47000 47100 47200 47300 47400 47500

Electricity Gas Fuel Oil Purchsed Steam Purchsed Chilled Water Water Sewer Cable Roads/Grounds Expenses Security Expenses Administrative Payroll, Taxes, Fringes Allocated Administrative Fee Management Fees Professional Fees General Industrial/Office Expense Employee Expenses Parking Operations Fixed Expenses Real Estate Taxes Personal Property Taxes Other Taxes Building Insurance Licenses/Fees/Permits

CC15a CC15b CC15c CC15d CC15d CC14a CC14b CF1 CC13 CC9 CE2 CE2 CE2 CE2 CE2 CE2 CC13 CA4 CA4 CA4 CC2 CA4

Non-recoverable expenses 50000-59000

NA

Amortization and Depreciation Expenses 60000-69000

NA

Financial Income and Expenses 70000-79000

NA

BOMA Chart of Accounts

IPD Cost Code - Measuring the cost performance of buildings

45

NEN Terms for Facilities The Dutch standard NEN 2748 divides occupancy costs into five main classes: 1 Accommodation (maintenance, renovation, etc.)

2 Services and resources (cleaning, catering, etc.)

3 Information and communication technology (hardware, software, etc.)

4 External facilities (external accommodation, home workplaces, etc.)

5 Facilities management (working conditions, environment, etc.)

Accommodation costs 1.1 Accommodation 1.1.1 Provision of buildings 1.1.2 Provision of terrain 1.1.3 Provision of parking 1.2 Taxes and Levies 1.2.1 Taxes 1.2.2 Levies 1.2.3 VAT compensation 1.3 Insurance 1.4 Maintenance 1.4.1 Maintenance - owner 1.4.2 Maintenance - tenant 1.4.3 Maintenance - terrain 1.5 Alterations 1.5.1 refurbishment 1.5.2 reinstatement 1.6 Utilities 1.6.1.1 Natural gas 1.6.1.2 Fossil fuels 1.6.1.3 District heating 1.6.1.4 Electricity 1.6.1.5 Water 1.7 Management 1.7.1 Acquisition and Disposal 1.7.2 Exploitation 1.8 Interest Support 2.1 2.1.1.1 2.1.1.2 2.1.1.3 2.1.1.4 2.2

service costs Catering services Company restaurant Workplace service Vending machines Catering for events Risk control

CA1, CA2 NA CA5 CA4 CA4 all CC2 CC4-CC6 CC4-CC6 CC13 CB1 CC8 CC15b CC15c CC15d CC15a CC14 CE1 CE1 NA

CD2a CD2c CD2b NA

NEN Terms for Facilities

46

IPD Cost Code - Measuring the cost performance of buildings

The structure of the NEN standard contrasts with that used in IPD Cost Code, but the table below attempts to reconcile the two approaches. It is interesting to note the variety of different IPD Cost Code categories within the NEN classification.

2.2.1 2.2.2 2.2.3 2.3 2.3.1 2.3.2 2.4 2.4.1 2.4.2 2.5 2.5.1 2.5.2 2.5.3 2.5.4 2.6 2.6.1 2.6.2 2.7

Security Prevention Reception Cleaning servcies Interior cleaning Glass cleaning Moves management Internal moves External moves Document management Document creation Document processing Document reproduction Document archiving Waste management Waste collection Waste removal Space provision services

CC9 CC9 CD3 CC10 CC10 CC7 NA NA CD5 CD6 CD9 CC11 CC11 NA

Technology costs 3.1 Information Technology 3.1.1 External infrastructure 3.1.2 Internal infrastructure 3.1.3 Hardware 3.1.4 Software 3.2 IT support services

CF1a CF1b CF2 CF3 CF4

External 4.1 4.1.1 4.1.2 4.1.3

CA6 CA7 CD8

facilities costs External facilities External accommodation External workplaces Conveyance of persons

Management costs 5.1 Facilities management 5.2 Implementation

CE2 CE4

RICS Code of Measuring Practice The RICS Code of Measuring Practice - Service Charges in Commercial Property is designed to classify service costs incurred by the landlord back to the tenant, primarily within the UK property market. As such, the costs are a small part of the Total Occupancy Costs incurred by the tenant. The table below shows an approximate mapping of the main RICS categories to IPD Cost Code. IPD Occupiers recommend that this cost mapping is carried out so that tenants can properly compare the costs incurred at their different buildings.

Management 1 Management fees 2 Accounting fees 3 Site management resources 4 Health, safety and environmental management Utilities 5 6 7 8

Electricity Gas Fuel oil Water

Soft services 9 Security 10 Cleaning and environmental 11

Marketing and promotion

CE1 CE1 CE2 CE4

PISCES data exchange standard Data exchange standards are able to offer occupiers the prospect of reduced data transfer costs, increased speed of process and improved data quality and accuracy. These are essential in the efficient automation of data exchange between the corporate occupier and its suppliers.

The Property Information Systems Common Exchange Standard (PISCES) is a data exchange standard that operates globally for all property activities and functions under the banner of Open Standards Consortium for Real Estate (OSCRE). The PISCES Occupancy Costs Workgroup aims to develop an international standard that will enable the automation and standardisation of occupancy data transfer to achieve the objectives set out in the previous paragraph.

The PISCES Occupancy Costs data exchange standard is a technical document for data specialists and can be found at www.pisces.co.uk.

CC15a CC15b CC15c CC14

CC9 CC10, CC11, CC14 CA8

Hard services 12 Mechanical and electrical services 13 Lift and escalators 14 Suspended access equipment 15 Fabric repairs and maintenance

CC4a CC4b CC4c CC5

Income 16 Interest 17 Income from commercialisation

CC1 CA1

Insurance 18 Engineering insurance 19 All risks insurance cover 20 Terrorism insurance

CC2c CC2a, CC2b CC2d

Exceptional Expenditure 21 Buildings insurance 22 Forward funding

CC8 CC8

RICS Code of Measuring Practice

IPD Cost Code - Measuring the cost performance of buildings

47

Appendix B - Mapping Guide

In this appendix we provide an overview of all relevant cost items whilst explaining how they relate to the cost categories set out in this IPD Cost Code. For more information on cost items not included in the appendix, please feel free to contact IPD Occupiers.

48

IPD Cost Code - Measuring the cost performance of buildings

Cost item Access control systems, readers and passes Acquisition tax and duty Acquisition, disposal and removal Acquisitions and disposals Adaptation and equipment Air conditioning (fit out and improvement) Air conditioning (repair and maintenance) Alarms (security) Archiving Archiving systems Associated facilities

CC9 CA3 CA3 CE1 CB CB1 CC4 CC9 CD9 CD9 CA6

Badges Blackberries Blinds Borders Building operation Burst pipes (premiums) Bus schemes Business support

CC9 CF2 CB2 CC13 CC CC2 CD8 CD

Cables and wires Carpeting Carpets (cleaning) Catering Catering equipment CCTV Central control (security) Central control (telephones) Chairs (cleaning) Chairs (furniture and equipment) Charges (real estate) Christmas decoration Cladding Cleaning Cleaning (internal plants and decorations) Collection (mail) Composted waste disposal Concierge services Condition surveys Confidential waste disposal Consolidated Services Charge Contract negotiations Courier and external distribution services Crockery and cutlery

CF1 CB1 CC10 CD2 CD2 CC9 CC9 CF2 CC10 CB2 CE1 CC12 CC5 CC10 CC12 CD5 CC11 CE2 CE2 CC11 CC1 CE1 CD4 CD2

Cost item

Cost item

Curtains

CB2

Design and layout Desk lights Desks (cleaning) Desks (furniture and equipment) Desktop phones Despatch (mail) Detectors Disposal costs Distribution (mail) District heating Doors (cleaning) Drainage Drapes Drinks Dusting (internal plants and decorations)

CE2 CB2 CC10 CB2 CF2 CD5 CC9 CA3 CD5 CC15 CC10 CC5 CB2 CD2 CC12

Earthquake (premiums) Electrical installations (fit out and improvement) Electrical installations (repair and maintenance) Electricity Energy Environmental management Environmental tax Equipment (internal moves) Equipment (repair and maintenance) Escalators Explosion (premiums) External and structural repair and maintenance External finishes External walls

CC2 CB1 CC4 CC15 CC15 CE4 CA4 CC7 CC3 CC4 CC2 CC5 CC5 CCf

Facilities management Feeding (internal plants and flowers) Fences Fenestration Filing cabinets Fire (premiums) Fire extinguishers Fire services Fit out (internal moves) Fit out (repair and maintenance) Fit out and improvement Fittings

CE2 CC12 CC9 CC5 CB2 CC2 CB2 CC4 CC7 CC3 CB1 CB1

Fixtures Flood (premiums) Flooring (fit out and improvement) Floors (cleaning) Flowers (external) Flowers (internal) Food Foundations Furniture (churn) Furniture (repair and maintenance) Furniture and equipment

CB1 CC2 CB1 CC10 CC13 CC12 CD2 CC5 CC7 CC3 CB2

Garden stores Gas General waste disposal Greenhouses Grounds maintenance

CC13 CC15 CC11 CC13 CC13

Handsets Hardware Health and safety Help desk

CF2 CF2 CE2 CE2

Identity cards Information management Information Technology Infrastructure Insurance Internal moves Internal Plants and Decorations Internal repair and maintenance Internal walls (cleaning) Internal walls (fit out and improvement) Intruder detection systems IT equipment (cleaning)

CC9 CE4 CF CF1 CC2 CC7 CC12 CC3 CC10 CB1 CC9 CC10

Kitchen equipment

CD2

Laptops Lawns Liability for excess Lifts Lighting (cleaning) Lighting (fit out and improvement) Lighting (security) Line charges

CF2 CC13 CC2 CC4 CC10 CB1 CC9 CF2

IPD Cost Code - Measuring the cost performance of buildings

49

Cost item

Cost item

Litter clearance Local property taxes Loss of rent (premiums) Loudspeakers

CC13 CA4 CC2 CC9

M&E repair and maintenance Maintenance contract (security) Marketing and Promotion MDAs Mechanical handling equipment Minor improvements Mobex phones Mobile phones Mobile phones (not call costs) Municipal tax

CC4 CC9 CA8 CF2 CB2 CC6 CF2 CF2 CF2 CA4

Notional rent

CA1

Occasional space Oil Opening (mail) Operating systems Other management

CA7 CC15 CD5 CF3 CE4

PABX Packaging (mail) Parking areas Parking charges Partitioning (fit out and improvement) Partitions (cleaning) Pavements Pavilions PCs Pedestals (cleaning) Pedestals (furniture and equipment) Pest control Photocopiers Post room and internal distribution services Printers Project management Property management Property occupation Pruning (internal plants and flowers)

CF2 CD5 CC13 CA5 CB1 CC10 CC13 CC13 CF2 CC10 CB2 CC10 CD6 CD5 CD6 CE3 CE CA CC12

Quality management

CE4

Rates

CA4

50

IPD Cost Code - Measuring the cost performance of buildings

Real estate management Reception services Recording (mail) Recycled waste disposal Redecoration (external) Redecoration (internal) Reinstatement Removal costs Rent Rent paid Rental value Reprographics Retrieval systems Road blocks Roadways Roof

CE1 CD3 CD5 CC11 CC5 CC3 CC8 CA3 CA1 CA1 CA1 CD6 CD9 CC9 CC13 CC5

Sanitary waste disposal Security Security contractors Security staff Servers Service charge Sewerage Shelving Shop fronts Signage (fit out and improvement) Snacks Snow clearance Soft furnishings Software Space heating Sprinkler systems Stamping (mail) Storage cabinets Strategic planning and reporting Subsidence (premiums) Subsidy (food and drink) Suppport Suspended ceilings (cleaning) Suspended ceilings (fit out and improvement) Switchboard systems

CC11 CC9 CC9 CC9 CF2 CC1 CC14 CB2 CB1 CB1 CD2 CC13 CB2 CF3 CB1 CC4 CD5 CB2 CE1 CC2 CD2 CF4 CC10 CB1 CF2

Tables Telephones

CB2 CF2

Cost item Telephones (cleaning) Terrorism (premiums) Tiles (cleaning) Tiling Toilets (cleaning) Toxic waste disposal Transport Travel subsidy

CC10 CC2 CC10 CB1 CC10 CC11 CD8 CD8

Uniforms (reception) Uniforms (security) Unitary charge Urinals (cleaning) User software

CD3 CC9 CA2 CC10 CF3

Valuations (real estate) Vehicular access control Voicemail Vouchers (food and drink)

CE1 CC9 CF2 CD2

Wall linings Walls (external) Walls (internal) Waste compactors Waste disposal Water and plumbing Water and sewerage Water supply Watering (internal plants and flowers) WCs (cleaning) Window boxes Windows (cleaning) Wireless components Woodwork and joinery Workplace management Works of art

CB1 CC5 CB1 CB2 CC11 CC4 CC14 CC14 CC12 CC10 CC13 CC10 CF1 CB1 CE2 CB2

IPD Cost Code - Measuring the cost performance of buildings

51

Appendix C - Measurement Template

In this appendix we provide a full list of cost components and underlying data items to collect for office buildings. On the first page you will find the contextual measures related to the property itself, its users and the workstations. On the subsequent pages you will find all cost measures to build a clear picture of the cost performance of an office building.

52

IPD Cost Code - Measuring the cost performance of buildings

1

Property 1A

Office Address (please complete all fields) 1AA 1AB 1AC 1AD

1B

Industry Sector (please tick one box) 1BA 1BB 1BC 1BD 1BE 1BF

1C

Employees (please complete both fields) 2AA 2AB

2B

2C

Open offices Touch downs

Semi-open Workstations (please complete relevant fields) 3BA 3BB 3BC

3C

Headcount FTE equivalent

Open Workstations (please complete relevant fields) 3AA 3AB

3B

Headcount FTE equivalent

Visitors (please complete both fields)

2CA 2CB Workstations 3A

Headcount FTE equivalent

Contractors (please complete both fields) 2BA 2BB

Cubicles Team spaces Work lounges

Enclosed Workstations (please complete relevant fields) 3CA 2CB 3CC 3CD

4

As new Minor defects Major defects

Users 2A

3

Central business district Other town centre Business park Rural location

Building Condition (please tick one box) 1EA 1EB 1EC

2

Headquarter office Client-facing office Administrative office Call centre Data warehouse

Building Location (please tick one box) 1DA 1DB 1DC 1DD

1E

Public Administration Oil, Gas and Utilities Telecom and Media Banking and Insurance Pharmaceutical and Research Other business activities

Building Type (please tick one box) 1CA 1CB 1CC 1CD 1CE

1D

Occupier name Street City Postcode

Private offices Share offices Team rooms Study booths

Core operating hours

IPD Cost Code - Measuring the cost performance of buildings

53

CA

CB

Property Occupation CA1

Net Rent

CA2

Rent paid CA1a CA1b Rental value CA1c Notional rent Unitary Charge

CA3

Acquisition, Disposal and Removal

CA4

Local Property Taxes

CA5

Parking Charges

CA6

Associated Facilities

CA7

Occasional Space

CA8

Marketing and Promotion

Adaptation and Equipment CB1 CB2

CC

Fit out and Improvement Furniture and Equipment

Building Operation CC1

Consolidated Services Charge

CC2

Insurance CC2a CC2b CC2c CC2d

Buildings Insurance Contents Insurance Engineering Insurance Terrorism insurance

CC3

Internal Repair and Maintenance

CC4

M&E Repair and Maintenance CC4a CC4b CC4c CC4d

CC5

M&E services Lifts and escalators Suspended access equipment Other M&E costs

External and Structural Repair and Maintenance CC5a CC5b

Planned external and structural maintenance Unplanned external and structural repair

CC6

Minor Improvements

CC7

Internal Moves

CC8

Reinstatement

CC9

Security

CC10 Cleaning CC10a Interior cleaning CC10b Exterior cleaning CC11 Waste Disposal CC11a CC11b CC11c CC11d CC11e CC11f

General waste disposal Toxic waste disposal Confidential waste disposal Sanitary waste disposal Recycled waste disposal Composted waste disposal

CC12 Internal Plants and Decorations CC13 Grounds Maintenance CC13a Hard landscaping costs CC13b Soft landscaping costs CC13c Litter and snow clearance CC14 Water and Sewerage CC14a Water supply CC14b Sewerage costs 54

IPD Cost Code - Measuring the cost performance of buildings

CC15 Energy CC15a CC15b CC15c CC15d CC15e CD

Business Support CD2

Catering CD2a CD2b CD2c

Reception Services

CD4

Courier and External Distribution Services

CD5

Post Room and Internal Distribution Services

CD6

Post room services Distribution services

Reprographics CD6a CD6b

Central reprographics Distributed reprographics

CD7

Disaster Recovery

CD8

Transport

CD9

Archiving CD9a CD9b

On-site archiving Off-site archiving

Property Management CE1

Real Estate Management CE1a CE1b

CE2

CE3

In-house facilities management Outsourced facilities management

Project Management CE3a CE3b

CE4

In-house real estate management Outsourced real estate management

Facilities Management CE2a CE2b

In-house project management Outsourced project management

Other Management CE4a CE4b CE4c

CF

General catering costs Vending machine costs Meeting room hospitality

CD3

CD5a CD5b

CE

Electricity Gas Fuel / oil District heating Other energy

Environrmental management Information management Quality management

Information Technology CF1

Infrastructure CF1a CF1b

CF2

Hardware CF2a CF2b

CF3

Telecommunications Comnputers

Software CF3a CF3b

CF4

External infrastructure Internal infrastructure

Operating systems User software

Support CF4a CF4b

Internal support staff External support staff

IPD Cost Code - Measuring the cost performance of buildings

55

56

IPD Cost Code - Measuring the cost performance of buildings

In association with:

IPD Occupiers 1 St. Johnâ&#x20AC;&#x2122;s Lane London EC1M 4BL United Kingdom T +44 (0) 20 7336 9200 F +44 (0) 20 7336 9399 E occupiers@ipd.com www.ipdoccupiers.com